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ChlOi.lO 




FOREIGN FINANCIAL CONTROL 

IN CHINA 




THE MACMILLAN COMPANY 

MBW VOXX • BOSTON • CKXCACO • DALLAS 
ATLANTA • SAN riANCISCO 

MACMILLAN & CO., Limrsd 

LONDON • BOMBAY • CALCUTTA 
MBLBOUXNS 

THE MACMILLAN CO. OF CANADA, Ln. 



FOREIGN FINANCIAL 
CONTROL IN CHINA 



BY 

T. W. OVERLACH 



il3eto i^otk 

THE MACMILLAN COMPANY 

1919 

±tt rightt tet^tvd 






/ 



APR 14 1919 



OoPTmiOHT, 1919 
By the BCACMILLAN COMPANY 



Set up and electrotjped. Published, January, 1919 






THE UBMORY OF 

WILLARD D. STRAIGHT 



PAGE 



CONTENTS 



THEORETICAL INTRODUCTION 

Foreign encroachment on China (i), Struggle of inter- 
national financial interests (ii), Conquest by railroad and 
bank (ii), China important center of world politics (jji), 
Necessity for clearer vision in international affairs (iii), 
Task (iii), Definitions: "Spheres of Interest," "Spheres 
of influence" (iv), "Open Door" (vi). Railroad "conces- 
sions" (vii), "Control" denotes certain "Financial Safe- 
guards" (viii), Foreigners have no right to political con- 
trol (x), Abuses of "Control" (x), Metliod of Investiga- 
tion (xii). 



CHAPTER I 

Historical Introduction : Foreign Relations with 

China before 1895 i 

The East India Company; Monopoly (i), The "Hong" 
as intermediary (2), Lord Macartney's attempts to estab- 
lish direct relations with Chinese government (3), Con- 
ditions of trade at beginning of 19th century (4), Abol- 
ishment of East India Company's Monopoly (5), Lord 
Palmerton's instructions to Lord Napier (5), Admission 
of Elliott as Comptroller (6), Treaty of Nanking, Con- 
cessions to British (7), John Quincy Adams on the Opium 
War (8) , Foreign relations with China remain unstable 
(9), License and violence of the foreigner (10), French 
and British interference (10), Treaty of Tientsin provides 
for British diplomatic agent (11), Establishes "Extra- 
territoriality" (12), Foundation of "Tsungli Yamen" 
(15), Formation of Maritime Customs Service (16), Un- 
satisfactory state of affairs (17), Expansion of trade (18), 
British policy of non-interference (21), French in Tonking 
and Annam (22), British secure counter-concessions (23), 
Burma and Sikkim pass under British rule (23), Chino- 
Japanese war opens new political problems (24), The 
"battle of concessions" of 1897 to 1898 (24), Play of eco- 
nomic forces (26). 



THEORETICAL INTRODUCTION 

With the conclusion of the Chino- Japanese War in 
1895, ^ ^^w era opened in the Far East, an era of rapid 
encroachment on China by powerful western nations and 
by Japan. These powers secured strategic bases on Chi- 
nese territory and sought to control certain parts of the 
Empire through the medium of railways. Railway con- 
cessions, and to some extent public loans, were the instru- 
ments by which the foreign powers advanced and carried 
out their policies. The obvious tendency of foreign am- 
bitions at this time in regard to railway enterprise was"* 
to secure a monopoly of rights within socalled " spheres 
of interest," and as far as possible to exclude Chinese 
as well as other foreigners not only from securing con- 
cessions but also from any share in the control or manage- 
ment of those railways that were to be constructed in their 
respective spheres. 

Though at first sight political, and fought by diplom- 
acy, the struggle for foreign control in China was not 
less one of international financial interests, contending 
for the exploitation of new opportunities for investment. 
Foreign capital was attracted by the great profits to be^ 



ii INTRODUCTION 

gained from the impending industrial revolution of China. 
In order to eliminate financial competition of other na- 
tions or to counteract political moves on the part of other 
governments, if such were destined to be harmful to its 
own expansion, foreign finance often solicited, and freely 
received, diplomatic protection. With a protection and 
promotion of foreign enterprise several governments 
combined the furtherance of national ambitions of a 
more or less political character. All banks and syndi- 
cates in charge of the railways and loans became more 
and more generally recognized as indispensable means to 
the political and commercial ends of their respective gov- 
ernments. The struggle for foreign control in China 
has accordingly been marked by a most singular and dis- 

Itinguishing feature, namely, the closest possible coopera- 
tion between foreign finance and foreign policy. The 
period was one of " conquest by railroad and bank." 

The tenacious determination on the part of several 
powers to control their respective spheres to the greatest 
possible exclusion of their competitors not only tended to 
prejudice China's integrity but also the full and free en- 
joyment of the treaty rights of others. Though protest- 
ing vehemently and professing adherence to the " open 
door " doctrine nations viewed, nevertheless, with jeal- 
ousy the preserves seized by others. They were driven 
to bitter diplomatic strife over each new prospective 
'* sphere/' In short, the tremendous pressure of modem 



INTRODUCTION in 

imperialism coupled with modem capitalistic enterprise 
was, in China as elsewhere on earth, a constant menace 
to peace ; and a continued application of imperialistic poli- 
cies to exclusively national ends might again make for 
war, as soon as the present conflict is over. For China 
will unquestionably become once more one of the principal 
centers of world politics, in which Great Britain, Russia, 
France, Germany, Japan, and the United States are con- 
cerned. 

But whatever the future relations of these nations in 
reference to China may be, it would appear that a clearer 
vision in international affairs would go far towards pre- 
venting further hostilities, namely, if each nation, with ! 
unprejudiced mind, would candidly consider the claims of ; 
an opponent as well as its own and would seek to strike a .' 
fair balance by mutual concession. Such is at least what 
we propose to do in the following modest contribution to 
the study of recent and present day financial and political 
activities of foreign powers in China. We shall adopt 
a sympathetic view and attj,tude towards all the powers 
concerned, trying to give justice to each, instead of seeing 
things through the colored glasses of national ambitions. 
To offer a solution, to give suggestions or to pass judg- 
ment can obviously not fall within the scope of our inves- 
tigation. We merely aim to give a comparative and 
scientific account of what we consider the most tangible 
and concrete problem of the otherwise so elusive Far 



iv INTRODUCTION 

Eastern Question, namely, the problem of " Foreign 
Financial Control in China." 

Before we can offer a definite program for our investi- 
gation we shall have to define our task more clearly. To 
that end it will be necessary to analyze certain theoretical 
phrases in their application to our problem and to reduce 
them to their true meanings. And we shall not be held to 
anticipate unduly if we define, at the outset, terms which 
will constantly reappear, although detailed illustrations 
will as a matter of course have to be reserved for their 
proper places. 

The principal phrases which we have in mind are: 
" spheres of interest," " spheres of influence," " independ- 
ence," " open door," " concessions," and " control." 

One thing common to all these terms is their flexibility ; 
for they have been used with the greatest latitude of 
meaning and have been applied to a great variety of 
relations; but through all their uses run certain special 
characteristics which may be determined with a fair de- 
gree of accuracy.^ The most confusing terms, often 
used interchangeably even in theoretical literature,^ are 
'* spheres of interest " and " spheres of influence." A 
^'* sphere of interest " is officially earmarked by non-aliena- 

1 See P. S. Reinsch, " Colonial Government," page 103. 

*W. E. Hall and L. Oppenheim, both of whom will be quoted 
below, in their treatises on International Law, fail to distinguish 
clearly between the two phrases, apparently only having conditions 
in Africa in mind. See Hall, pages 129 to 131, and Oppenheim, Vol. 
I, page 297. 



INTRODUCTION v 

tion declarations extracted from the Chinese Government 
and officially created by an agreement between two 
powers. It refers to an area frequently adjacent to a 
possession or a protected or leased territory within which 
area the foreign power claims the primary right of eco- 
nomic exploitation.^ Its essential element is a negative 
one; namely, the term expresses the principle that no 
other power except the one in whose favor the " sphere 
of interest '' exists shall be permitted to acquire conces- 
sions or to exert any control or influence whatsoever — 
not to speak about military occupation — at the same time 
giving the privileged power a monopoly of the right to 
seek concessions.* This privilege, however, does by no 
means entitle its holder to any positive exercise of " in- 
fluence" within the sphere which would change the 
** spEere of interest " into a " sphere of influence.'' For 
the latter term, which never has been used officially, as 
far as China is concerned, suggests a certain degree of 
authority or control, either financial or political, exer- 
cised by a foreign power within a certain territory. 

Political control, however, has to stop short of chang- 
ing the " sphere of influence " into a protectorate. 

• Foreign " spheres ** in China are, legally, only economic spheres • 
in contrast to ^e political spheres of Africa. 

*Sce Reinsch, page 103. Otto Kobner, " Kolonialpolitik," page 
14: " Streng rechtlich betrachtet liegt also nur ein pactum de ex- 
dudendo alium vor. . . . Erfolgt von Seiten einer dritten Macht 
ein Widerspruch nicht, so ist rechtlich ein ius excludendi alios, alien 
fremden Machten gegeniiber entstanden." 



\ 



vi INTRODUCTION 

Though eventual occupation may be contemplated, the re- 
gion has " not actually been so reduced into control that 
the minimum of the powers which are implied in a 
protectorate can be exercised with tolerable regular- 
ity." « 

As long as control consists merely of a legitimate pro- 
tection of the financier, subject to agreements of an ex- 
clusively financial nature, no objection can be raised by 
anybody. But as soon as the exercise of a reasonable 
financial control changes into the exercise of an adminis- 
trative control or an assumption of territorial supremacy 
by a foreign power, without any sanction on the side of 
the Qiinese, such control would seriously menace the 
supreme sovereign authority, in other words, the inde- 
pendence, of China. For one of the marks of an inde- 
pendent state is that " it is independent of external con- 
trol." ® " In the interest of the territorial supremacy 
.of other states, a state is not allowed to send its troops 
... or its police forces into . . . foreign territory, or 
to exercise an act of administration or jurisdiction on 
foreign territory without permission." '' 

The wielding of a political control would also be violat- 
ing the socalled " open door " policy. For this policy 
aims to be an instrument for the maintenance of the integ- 
rity of China and the preservation of an " equal oppor- 

8 See W. E. Hall, " International Law," page 129. 

• See Hall, op cit., page 17. 

T See L. Oppenheim, " International Law," Vol. I, page 179. 



INTRODUCTION vii 

tunity for all." It is mainly directed against the assump-^ 
tion of an undue administrative control or territorial 
supremacy within a " sphere." It is, however, not ex- -. 
plicitly opposed to the policy of " spheres of interest," 
and not necessarily to the " sphere of influence " as long 
as influence means financial control within reasonable 

bounds. Indeed, the " open door " principle recognizes 

• 

the " vested rights " and " special interests " within such 
spheres as long as a certain amount of opportunity for 
others is preserved, that is, as long as the Chinese treaty 
tariff is indiscriminately applied, as long as treaty ports 
are kept open and as long as no harbor dues or railroad 
charges are levied higher than those imposed upon sub- 
jects of the country in whose favor the " sphere " exists. 
The principle is also more or less opposed to the acquisi-^ 
tion of a monopoly in the supply of railway materials and 
rolling stock. 

To return to the term " sphere of interest " : The 
interests have invariably taken the form of the socalled* 
railroad " concessions." The term concession has been 
as loosely applied as the other phrases. Railroad con- |^ 
cessions are agreements, conferring on the foreigner cer- 
tain rights of financing, building and managing of rail- 
roads. In several cases where the railroad grants have^ 
been made under conditions which deprive China of al- 
most all control and profit in the several undertakings, 
and which lead to political control and therefore prejudice 



viii INTRODUCTION 

her sovereign rights within the " sphere," the term " ces- 
sion " might be more appropriate than " concession." In 
many cases the " concessions," that is, the railroad agree- 
ments, are simply in the nature of underwriting contracts. ^ 
In no instance have the Chinese parted with the ultimate 
/ property in the railways. 

The grantor of the railway concessions as well as the 
principal claimant of capital was the Chinese Govern- 
ment. But while to strong and reliable governments 
money is entrusted unconditionally, China's political in- 
security, together with her financial inexperience, forced 
the foreign financier to maintain a great amount of con- 
trol over his investments. The principal feature of all 
^railroad agreements then are the " control " clauses, and 
the word " control " in this connection is being used " to 
denote certain financial safeguards for the protection of 
loan funds " in the interest of the owners and the bond- 
holders.® These safeguards either consist of a first mort- 
•gage upon the railway if owned by the Chinese Govern- 
ment and in a certain share in the management of the 
line in order to prevent fraud and to secure efficiency and 
an adequate return, since the lenders usually are entitled 
to a share in the profits of the line. Or " control " means 
direct management by the foreign owners, if the railway 
is nominally a private foreign and Chinese joint stock 

* The quotations in the definition of control have been taken from 
W. D. Straight, "Recent Developments in China/* page 131. 



INTRODUCTION ix 

company in which the Chinese in the natural course of 
things had but little share. 

The word " control " similarly refers to loans, in which 
connection it signifies certain " guarantees against im- 
proper loan fund expenditure," and secures principal and 
interest by some special hypothecation and the supervision 
or management thereof — as, for instance, when the 
revenue of customs, taxes, or some monopoly is 
pledged. 

Furthermore has the word "control," though inac- 
curately, been used in connection with certain monopolies, 
which interest us only secondarily. On the one hand 
have the contracting bankers occasionally " controlled " 
the supply of railway materials and rolling stock by stipu- 
lating that such were to be purchased from the manufac- 
turers of their respective countries. On the other hand 
did the bankers through national or international monop- 
olistic syndicates attempt to " control " the money supply 
to China. 

The main^oints we now mean to emphasize, are : 

First, that the " control " clauses embodied in the sev- 
eral concessions as well as loan agreements are nominally 
of a financial character. All railways and loans are nom- 
inally, as Tar as foreigners are concerned, financed, man- 
aged, or controlled by private citizens, and the control 
provisions constitute nothing else but foreign expert sup- 
ervision or management to secure adequate profits. That 



X INTRODUCTION 

is to say : the provisions confer legally upon the foreigner 
no rights to political control. 

Secondly, that the " sphere of interest '' policy and the 
agreements referring thereto do likewise not confer upon 
the privileged power any rights to political control. For 
China had not the slightest intention of selling its sov- 
ereign rights within said spheres. 

Thirdly, that the several control provisions vary con- 
siderably as to character and degpree since they reflect the 
tendencies of the Far Eastern policies of foreign powers 
which either represent the results of economic pressure 
or serve as incidents in a larger policy of national im- 
perialism. It is important, in this connection, to bear in J 
mind, that concessions and loan contracts have been ne- 
gotiated not only by bankers who acted as politico-finan- 
cial agents of their governments but also by diplomats 
directly. And it will be observed that, whereas it was 
the aim of the one power to insist upon " adequate con- 
trol " for economic purposes and incidentally to China's 
interest, it was the aim of the other power to control 
railways or loans for more or less political purposes and 
against China's interests. The control provisions there- 
t fore often tended to evade, by practices which are diffi- 
cult to trace definitely, the principle of equal opportun- 
ity, and to undermine China's sovereignty. In other 
^ words, foreign control in China is nominally purely finan- 
cial, and if political, it is an imdue extension of financial 



INTRODUCTION xi 

control by means of a peculiar wording and an arbitrary 
interpretation of the control clatises embodied in the dif- 
ferent railroad and loan agreements. 

It might be objected here that certain powers have ex- 
ercised and still exercise control upon other premises than y 
railroad or loan agreements. It is one of the aims of 
our investigation to show that this is not the case, — with 
the exception of the Maritime Customs Service in its 
original form.® True enough, several powers have con- 
trolled Chinese territory by military force. Such con- 
trol, however, has always remained a temporary meas- 
ure. Control as we understand it, is of a permanent 
nature. Neither must " foreign control " be confused 
with the sovereign rights enjoyed by foreign powers 
within " leased territories," nor with the rights of extra- 
territoriality, nor with foreign administration of interna- 
tional settlements. In the first two cases China has ex- 
plicitly ceded certain sovereign rights, and the third case 
is practically nothing but an extension of the right of 
extraterritoriality. Foreign " control " is exercised ^ 
where no sovereign rights have been ceded. If we entitle 
this book " Foreign Financial Control in China " we 
do so firstly to avoid any possible confusion, and sec- 
ondly to indicate the sources as well as the raison d'etre 
of foreign " control." 

By too many distinctions at the outset, however, we 

• Sec Chapter I. 



xii INTRODUCTION 

might anticipate certain results of our investigation. 
The advantages and justification of narrowing down the 

^ vast field of foreign finance and foreign policies in China 
to a more concrete question of foreign financial control 
will, we trust, become clearer when the proceedings and 
problems which have been touched upon are analyzed and 
narrated in detail. We shall consider these by treating 
each foreign power individually, although such treatment 
may involve repetition in certain particulars, seeing that 
the several policies are occasionally closely connected. In 
order to understand fully the character and degree of for- 
eign control and the policies and operating causes under- 
lying it, we shall have to give a comprehensive knowledge 
of past and existing affairs, conditions, and problems. 
The method of our investigation therefore must be mainly 
historical. By considering the vastness of the field, the 
thesis can only aim at a brief analysis and interpretation 
of history, based upon the most important doctunents and 
utterances of authorities and writers such as are entuner- 
ated in the Bibliography. Many important events which 
have no direct bearing upon the subject will have to be 
left unmentioned. Likewise will many of the numerous 
railways and loans, either contracted or projected, have 
to be left undiscussed. For our purposes it will be suf- 

I ficient to consider only the more important contracts and 
agreements. 

The main investigation is to be preceded by a general 



INTRODUCTION xiii 

historical introduction, which makes no claim to scientific 
value whatsoever. In this chapter we merely intend to 
set the stage, so to speak. The arrangement of the chap- 
ters which then follow will not be strictly chronological 
but rather chronological, subject to geographical and his- 
torical conditions. A separate chapter is to be devoted to 
international control, while in the conclusion some reflec- 
tions will be made. A word has to be said about the 
spelling of Chinese names. The writer has not adopted 
a uniform system, but has quoted names as he found 
them printed. Thef inconsistency in spelling them is due 
to the fact that each author spells Chinese names as he 
pleases. The majority of these conform to Giles' system 
or to common usage. 

In concluding our introductory remarks we venture to 
believe that the subject demands the treatment which we 
have outlined, and that it will be found both logical and 
convenient. 



FOREIGN FINANCIAL CONTROL 

IN CHINA 

CHAPTER I 

FOREIGN RELATIONS WITH CHINA BEFORE 1895 

China's recent and present day international relations 
will be better understood on the basis of a knowledge of 
the development of these relations during the nineteenth 
century. Of the literature available on this period ^ we 
have principally followed the two admirable accounts of 
Sargent, " Anglo-Chinese Commerce and Diplomacy," 
and Morse, " The International Relations of the Chinese 
Empire " ; and since we can dwell upon the nineteenth 
century previous to 1895 only in an introductory way, we 
shall content ourselves with a brief summary of the two 
books, supported by references to official documents and 
by a few other quotations. 

China has been opened by England to intercourse with 
the modem world. The early history of British rela- 
tions with China is to all practical purposes the history of 
the East India Company, which made the project of 
opening up a trade with China an integral part of her 

1 See Bibliography, Section VI. 



I 



( 



2 FOREIGN FINANCIAL CONTROL IN CHINA 

policy. The great bulk of the capital required for the 
trade with the East was invested in ships and goods and 
in a few trading stations in fixed establishments abroad. 
The Company's station in China was the " factory " at 
Canton where she enjoyed a monopoly granted to her by 
Great Britain and special privileges o btained from Ch ina. 
This twofold advantage enabled the Company to main- 
tain her commercial predominance of the Chinese trade 
intact throughout the various vicissitudes of its fortunes 
and in spite of the modifications introduced at successive 
intervals of the charter. The excellent responsible or- 
ganization gave her the further advantage of stability in 
dealing with the Hong merchants and Chinese officials. 
The latter in their intercourse with foreigners concerned 
themselves only with two points: the revenue and taxes 
imposed arbitrarily to be collected, and the orderly be- 
havior of the traders. As intermediary in all things be- 
tween the Chinese officials and the foreigners they in- 
stituted the Hong, which was a body of merchants num- 
bering from two to eleven. The Hong was responsible 
to the government for the good behavior of the foreign-^ 
ers, and for the customs duties on the whole trade, in- 
cluding that of outside or unprivileged merchants. The 
responsibility of the Hong merchants was more than 
nominal. No foreign ship was allowed to trade until 
one of their body had become security for the good be- 
havior of the crew. Those strict regulations served the 9 



HISTORICAL INTRODUCTION 3 

purpose of restricting the energetic foreigner to only such 
intercourse as could be carried on under official super- 
vision. The monopoly system of the Hong was emi- 
nently calculated to attain this end. The functions of 
the Hong were thus diplomatic or political as well as 
commercial. In the former capacity they acted as a 
convenient barrier between the degraded " barbarian " 
and official pride ; in the latter they were useful as a fairly 
safe and regular means of filling official coffers. 

In their dealings with the Hong and the officials, the 
Company, as the only representative foreign body, was 
compelled by its traditions to champion the cause of for- 
eigners in general and it was only at the close of the 
eighteenth century that the British Government began 
to take official intercourse in its own hands. This first 
step was the embassy of Lord Macartney, sent out both 
on behalf of the East India Company, and in order to im- 
prove the general relations between the two nations. It 
was pointed out to Macartney that, though the English 
were more numerous than other foreigners at Canton, 
they had hitherto had no official communication with the 
Chinese Government, iand that it was the duty of the 
Sovereign to take up the matter and defend the interests 
of his subjects. Here is the beginning of a trouble which 
required a century for its settlement. It was thought that 
the local rather than the Imperial officials were respon- 
sible for the vexatious restrictions on intercourse with 



4 FOREIGN FINANCIAL CONTROL IN CHINA 

foreigners, and subsequent diplomatic history is largely 
concerned with attempts to establish direct relations with, 
and wring concessions from, the Chinese Government. 
The main questions which were destined to be fought out 
in the nineteenth century were the legal control over for- 
eigners and the conditions under which commercial inter- 
course was to be allowed. 
\ With the beginning of the nineteenth century, this 
intercourse had become more and more difficult. The 
number of foreigners resorting annually to Canton had 
greatly increased; disturbances were frequent, the anti- 
foreign feeling became more clearly marked, and there 
was undoubtedly, on the part of the Chinese, a distinct 
intention to restrict as far as possible the existing privi- 
leges of foreigners. With the appearance of numerous 
rprivate traders the commercial importance of the East 
/ India Company began to decline and the profits which so 
far had been satisfactory began to diminish. In view of 
these commercial and political difficulties and of the grow- 
ing hostility of the Chinese, the position of the Company 
was becoming critical. A final attempt to improve her 
relations with China by invoking the aid of the State 
and sending out the embassy of Lord Amherst in 1816 
with the hope that the establishment of direct relations 
between the two governments might lead to better trade 
conditions generally, also proved a failure. In conse- 
quence of all this, the monopoly of the Company was 



m-i 
ivev 



HISTORICAL INTRODUCTION 5 

abolished in 1833, owing especially to a large force be- 
hind Parliament, both of traders and theorists, who advo- 
cated open trade on various grounds. 

Simultaneously with the abolishment of the monopoly, 
other orders in Council provided regulations for future 
relations.^ Three " superintendents " were contem- 
plated to present British authority. The orders also give 
power to the Crown to create a Court of Justice with! 
criminal and admiralty jurisdiction at Canton and to ap- 
point one of the superintendents to be the officer to hold 
such a court. Here we have the formal opening of 
British relations with China. The instructions by Lord 
Palmerston to Lord Napier and his colleagues, as the 
first superintendents, throw considerable light on the ideas 
and policy of the Home Government.' The superin- 
tendents were enjoined to watch over trade generally and 
to adjust disputes between British subjects and Chinese 
or foreigners. In doing so they had to avoid irritating 
Chinese officials and above all impress on British subjects 
the duty of conforming to the laws and usages of the 
Chinese Empire. Lord Napier was directed to ascertain 
how far it might be possible to extend trade to other 
parts of China and to seek for the best means of estab- 
lishing direct relations with China. There is evident in 

2 See " Additional Papers Relating to China," 1840, Vol. XXXVI. 
8 See "Correspondence Relating to China," 1840, Vol. XXXVI, 
No. 2. 



\%^1 



6 FOREIGN FINANCIAL CONTROL IN CHINA 

these instructions an attempt to give effect to the aspira- 
tions of the British mercantile community towards a 
wider trade based on more secure conditions than the 
custom of the Company. 

The Chinese were well aware of the radical difference 
between these new officials and their predecessors, and 
they did all in their power to coimteract the British policy. 
Thus Napier's mission was unsatisfactory. It then be- 
came clear that nothing had been gained by the removal 
of the East India Company ; on the contrary the Chinese 
were attempting further restrictions and continued to 
refuse acknowledgment of the Government emissaries. 
However, on February 2nd, 1837, the Chinese policy 
underwent a little change, when an Imperial Edict gave 
the required permission for admittance to Canton to 
Superintendent Elliott as comptroller, who after months 
of negotiations was successful in really establishing his 
official position after having boldly informed the viceroy 
of his appointment to the station of the " Chief English 
authority in China." * His admission marks a new 
chapter in the history of English commercial relations 
with China. The English abandoned the quiescent policy 
f the earlier times and showed determination. The 
first result of the new policy was the Opium War, during 
which the British took permanent possession of Hong-. 



f 



*Sce "Correspondence Relating to China/' 1840, Vol. XXXVI, 
pages 142 fT. 



HISTORICAL INTRODUCTION 7 

kong. The war was concluded by the treaty of Nanking 
of August 29th, 1842.*^ 
Its enactments are simple in the extreme — they are : 

1. The conclusion of a lasting peace between China and 
Great Britain. 

2. The payment of an indemnity of $21,000,000 by 
China to England: $3,000,000 to settle Hong debts, $12,- 
000,000 to cover expenses, and $6,000,000 as opium com- 
pensation. 

3. The opening of Amoy, Canton, Fuchow, Ningpo, 
and Shanghai to British trade. 

4. The cession of the island of Hongkong to England. 

5. The provision for free transit of goods after pay- 
ment of the tariff and a fixed transit duty. 

Opiiun was the immediate cause of the war. The 
Chinese tried to stop opium smuggling, which was 
strongly supported by the Indian Government. India 
was profiting enormously by the trade and did not wish 
to discontinue it. When the Chinese stopped it they put 
themselves in the wrong. Yet opium was not the prin- 
cipal reason for hostilities. A contemporary conception 
of the significance of the Opium War is given by John 
Quincy Adams in an address before the Massachusetts 
Historical Society, November 22nd, 1841, on the subject 
y of " The War between England and China." 

• See W. F. Mayers, " Treaties Between the Empire of China and 
Foreign Powers," page i. 



8 FOREIGN FINANCIAL CONTROL IN CHINA 

" The justice of the cause between the two parties, — 
which has the righteous cause ? You have perhaps been 
surprised to hear me answer, Britain. Britain has the 
righteous cause. But to prove it, I have been obliged to 
show that the opiiun question is not the cause of the war. 
/My demonstration is not yet complete. The cause of the 
I war is the kowtow! — the arrogant and insupportable 
pretension of China that she will hold commercial inter- 
course with the rest of mankind, not upon terms of equal 
reciprocity, but upon the insulting and degrading forms of 
lord and vassal." ® " In fact the direct cause of the war 
was the growing sense of the need for better protection 
to life and property, though behind this was the groimd 
cause of the need for better relations generally." '' The 
Treaty of Nanking, then, intended to settle the disputes 
between the mandarins and the British traders and it was 
to be the charter of commercial rights in China, acknowl- 
edging for the first time in history, the existence of a 
Western Power on an equality with the Celestial Empire : 
For Article I stipulates that the respective subjects " shall 
enjoy full security and protection for their persons and 
property within the dominions of the other," while ac- 
cording to Article II Great Britain " will appoint Super- 

« Boston Evening Transcript, Wednesday, Nov. 24, 1841, quoting 
the transactions of the Massachusetts Historical Society of Nov. 
22, 1841. 

^ See H. B. Morse, " The Trade and Administration of China," 
page 36. 



HISTORICAL INTRODUCTION 9 

intendents or Consular Officers, to reside at each of the 
above-named cities or towns, to be the meditim of com- 
munication between the Chinese authorities and the 
merchants." 

But when England accepted the treaty in final settle- 
ment of the annoyances which had led to the war of 
1839, she had reckoned without her host. Owing to the 
fact that the Chinese were not permitted by a Christian 
nation to abolish the infamous opium traffic because it 
was a very lucrative one, and owing to the humiliation 
of their defeat and of the Treaty of Nanking, which has 
" inflicted a deep wound in the pride, but by no means 
altered the policy of the Chinese Government," ® and last, 
but not least, owing to the conservative and even stub- 
bom disinclination on the side of the Chinese to treat 
other nations on terms of equality, relations between 
China and other Powers, and especially with Great Brit- 
ain, continued unstable. The Chinese view of the treaty 
was in marked contrast to its terms. China had signed 
it reluctantly and merely to stop the incursions of the 
British in her realms, and, having obtained her aim, she 
made no attempt to abide by its provisions. Thus the 
period following the Treaty was filled with further dis- 
turbances and difficulties in the relations, the principal 
complaint being that charges still were suddenly and 

• Sec Alexis Krausse, " The Far East," page 36. 



lO FOREIGN FINANCIAL CONTROL IN CHINA 

arbitrarily imposed by the provincial officials in spite of 
the treaty stipulations. 

But on the other hand, the reports and opinions of 
consuls drawn up for the benefit of Lord Elgin show 
plainly that many elements of disturbance were also to be 
found within the European settlements, and that in the 
matter of observance of treaties the Chinese were far 
from being the only offenders.® 

To quote Sargent ^^ : " Foreign merchants, in direct 
custom-house relations with Chinese authorities, all more 
or less venal and corrupt, launched into a wholesafe sys- 
tem of smuggling and fraudulent devices for the evasion 
of duties. Contempt for all Chinese authority, and dis- 
regard of inherent rights, habitual infraction of treaty 
stipulations, licence and violence wherever the offscum of 
the European nations found access, and peaceable people 
to plunder — such were the first-fruits of this important 
concession; and time only served to increase their 
growth." 

Conditions soon pointed to another armed interference 
in which the French joined hands with the English, 
while Russia and the United States abstained strictly 
from any hostile steps, using moral suasion alone. The re- 
suit of the interference was the Treaty of Tientsin, which 

® Correspondence relating to Earl of Elgin's special mission to 
China, 1857 to 1859,' " China," 1859, Vol. XXXIII, No. i. 
1® Sargent, op. cit, page 103. 



HISTORICAL INTRODUCTION II 

was signed with China on the 26th of June, 1858, by Lord 
Elgin in connection with representatives of France.^* 
This treaty strengthens that previously arranged at Nan- 
king, and supplies several omissions in the former. It 
serves as the ultimate basis of foreign relations with 
China and therefore merits a close examination. The 
most important novelty is put in the forefront of the doc- 
ument. Article 2 provides for the sending of an ambas- 
sador to the court of Peking with all the usual privileges 
of such ministers and the dispatch of a similar represen- 
tative from China to London. He may come and go at 
pleasure; his letters are to be inviolable; he may com- 
mtmicate with a high official on terms of equality, and 
shall not be called on to perform " any ceremony derog- 
atory to him as representing the Sovereign of an inde- 
pendent nation." By this clause, China is compelled, 
once and for all, to surrender her formal claim of supe- 
riority over western nations, which was one of the most 
cherished principles of the traditional policy of the Em- 
pire. Next in importance to the position of the British 
representative comes the fuller recognition of the prin- 
ciple of extraterritoriality. Referring to the latter 
Morse writes,^* " English . . . were not molested so long 
as they were law-abiding, but law-abiding in the sense of 
the law of China. It was irksome to them to have no 

11 See Mayers op.^cit, page 11. 

12 Sec Morse, " Trade and Administration of China," page 179. 



12 FOREIGN FINANCIAL CONTROL IN CHINA 

lawyer to instruct them in the law of the land, to have no 
fixed and certain law to appeal to, to be doubtful of the 
application of the law to any particular case, and to have 
no doubt whatever on the course likely to be followed by 
the administrators of the law." While the Treaty of 
Nanking made consuls the ** medium of communication 
between Chinese authorities and the merchants," and 
while the supplementary treaty of Hoomunchae ^^ merely 
contained provisions for extradition, and regulations re- 
garding the punishment of English criminals. Article XV 
of the Treaty of Tientsin establishes the principle of ex- 
traterritoriality as far as British subjects only are con- 
cerned : " All questions in regard to rights, whether of 
property or persons, arising between British subjects, 
shall be subject to the jurisdiction of the British authori- 
ties." The principle of extraterritoriality was more 
clearly expressed and expanded in the Chef oo Convention 
of 1876,^* between Great Britain and China, providing 
for mixed jurisdiction between English and Chinese, and 
again in the American Supplemental Treaty of Peking 
of 1880.^** In the latter, Article IV reads as follows : — 
" When controversies arise in the Chinese Empire be- 
tween citizens of the United States and subjects of His 
Imperial Majesty, which need to be examined and de- 

18 See Mayers, op. cit., page 5. 
1* See Mayers, op, cit., page 44. 

" See Malloy, " Treaties Between U. S. and Other Powers," Vol. 
I, pages 239 fF. 



/ 



IlISTORICAL INTRODUCTION 1 3 

cided by die public officers of the two nations, it is agreed 
between /the Governments of the United States and 
China mat such cases shall be tried by the proper official 
of the nationality of the defendant. The properly 
autfwrized official of the plaintiff's nationality shall be 
freely permitted to attend the trial, and shall be treated 
with the courtesy due to his position. He shall be 
granted all proper facilities for watching the proceedings 
in the interests of justice. If he so desires, he shall have 
the right to present, to examine, and to cross-examine 
witnesses. If he is dissatisfied with the proceedings he 
shall be permitted to protest against them in detail. The 
law administered will be the law of the nationality of the 
officer trying the case." 

Articles IX-XI of the Treaty of Tientsin contain the 
new concessions. British subjects may travel for pleas- 
ure or trade to all parts of the interior, under passports 
issued by their Consuls, and cotmtersigned by the local 
authorities. Newchwang, Tangchow, Taiwan, Swatow, 
and Kiungchow are opened as new treaty ports, where 
foreigners are privileged to establish consulates and for- 
eign merchants are permitted to live and trade. The 
new area thus provided for British enterprise was greatly 
extended by the opening of the Yangtsze to British 
merchant ships. 

Finally Article XXVIII deals with the vexed question 
of inland transit duties. At all the treaty ports there are 



14 FOREIGN FINANCIAL CONTROL IN CHINA 

levied dues and duties on the trade according to a tariff 
settled by both parties. Goods were exempted from all 
further taxation on movement by one initial payment, 
except that the goods go " inland " to a place which is 
not a treaty port, where the bale is liable to the taxa- 
tion which is levied in China on all movement of com- 
modities not exempted by " special privilege." This is 
the one reason underlying the constant demand for the 
opening of new treaty ports, with all the expense for 
administrative work imposed on China, and for the en- 
forcement of extraterritorial rights. This Article 
XXVIII does away with the arbitrary imposition by 
provincial authorities of transit duties, so much com- 
plained of by British merchants, and stipulates a single 
transit charge to be declared by the collector of duties 
and to be levied at the first barrier or at the landing port. 
The charge is to be as near as possible 2j^ ad valorem. 
Hereafter goods are exempt from all further inland 
charges whatsoever. 

Between the signature of the treaty and its ratification 
there was again a period of armed conflict, illustrating 
the reluctance of the Central Government. The Con- 
vention of Peking finally signed the treaty on October 
24, i860, a few days after the English and French Allies 
had found it necessary to give the Chinese a severe lesson 
in destroying the summer palace. 



HISTORICAL INTRODUCTION 15 

Treaties similar to the British treaty were immediately 
afterwards concluded by all the important powers. 

The political history of the next few years is largely 
taken up with the difficulties incidental to the execution 
of the terms of the treaties. The governments standing 
behind the two contesting parties, the Chinese officials and 
the merchants, seemed to be disposed for a time to settle 
their differences by diplomacy rather than by force. The 
main step in that direction taken by China was the foun- 
dation of the Tsungli Yamen, or Board of Foreign 
Affairs, a product of the moderate party of Prince Kung. 
Having thus to deal with a responsible central body the 
English decided not to tolerate local pressure any longer 
and tried to induce the Chinese to adopt western ideas as 
to the subordination of local to central authority. The 
strengthening of central authority as against provincial 
authority would have been to China's own interests, since 
local officials were not willing to surrender revenue col- 
lected for the benefit of the Chinese Government, which 
was in need of resources to cope with the Taiping rebel- 
lion. In this connection the English helped China not 
only to strengthen centralization, but they also sent mili- 
tary aid to quell the Taiping rising, which at one moment 
threatened to overwhelm the whole country and to depose 
the Manchu dynasty. Thus the British Government com- 
mitted itself definitely by this assistance rendered to the 



1 6 FOREIGN FINANCIAL CONTROL IN CHINA 

upholding of the dynasty and to the protection of the 
Empire's integrity. 
r In spite of all this friendly assistance, however, the 
attitude of the Chinese underwent no material change. 
Internal disorder and corruption seriously affected the 
execution of the treaties; the transit system continued to 
be totally inefficient and imsatis factory. The internal 
administration of China was hopelessly corrupt ; military 
and civil organization were in confusion; the Empire, 
without rail or telegraph, with its capital in the far north, 
was too vast for effective centralized government. Reor- 
ganization, indeed, was greatly needed everywhere. The 
only thing accomplished in that line was the reforma- 
tion of the customs system on western lines, when native 
talents and methods were inadequate for dealing with 
the complicated conditions introduced by the Treaty of 
Tientsin. 

The formation of the " foreign customs," says 
Morse, ^® " was laid in the necessities of the Chinese Gov- 
ernment and not in any demand by the foreign merchant 
that an improved revenue service should be provided for 
them." The system grew out of the voluntary collection 
of customs established in Shanghai during the Taiping re- 
bellion. It was ever more enlarged anii Rule lo of the 
Agreement of the Tariff Commission of 1858 laid the 
foundation for the appointment of a foreign Inspector- 

i« See Morse's " Trade and Administration/' page 366. 



HISTORICAL INTRODUCTION 17 

ate.^^ In 1863 Mr. — later Sir — Robert Hart was ap- 
pointed Inspector General and brought the system to its 
highest possible efficiency, thus benefiting the Chinese as 
well as foreign creditors : for the Chinese Maritime Cus- 
toms were to serve as securities for loans, to which we 
shall have occasion to refer later. 

AH further attempts on the European side at reorgan- 
ization and the attempts to carry out the different treaty 
stipulations and the conventions for treaty revisions 
proved to be without any result. The Chinese were not 
only not prepared to make any further concessions but 
they also desired a great deal to be altered. The car- 
dinal points of Chinese policy were brought to light at 
the Convention of 1869.^® These were — the total pro- 
hibition of opium, the restriction of missionaries from 
inland residence, and the abolition of the principle of ex- 
traterritoriality. They amounted to the recovery of the 
greater part of that liberty which had been wrested from 
the Court of Peking in the various treaties. Chinese 
opposition was reen forced by the extravagant demands 
of the British merchants. The latter insisted upon the 
most sweeping changes, but were not disposed to concede 
anything. Indeed, their presence in China was not based 
on the desire to fiuther the welfare of the Chinese but 

on their own benefit. And that in the treatment of China 

^^ See Mayers, op. cit., pajare 31. 
1^ See Mayers, op. cit., page 37. 



1 8 FOREIGN FINANCIAL CONTROL IN CHINA 

by the foreigner much remained to be desired was amply 
illustrated by the plea of Burlingame in his famous mis- 
sion on behalf of the Chinese Government. 

The demands of the merchants were not only prompted 
by an unsatisfactory state of affairs in China, but they 
also reflected unsatisfactory trade results. For a quarter 
of a century after the passing of the East India Company, 
the British had cherished the idea that the Chinese Em- 
pire, once successfully opened to trade, would offer a 
vast field of lucrative opportunities for British mer- 
chants. The several wars and following treaties were 
deliberately undertaken for the development and protec- 
tion of that field. Yet the renewed activities of trade 
as shown after the treaties of Nanking and Tientsin, and 
the extension of the markets by the addition of new 
treaty ports proved to be of little advantage to the for- 
eign mercantile community in China. The possibilities 
of the trade and the opening of the Suez Canal had 
attracted large numbers of traders with small capital or 
credit, while the more responsible merchant, in anticipa- 
tion of lower profits on each transaction, was naturally 
disposed to enlarge the scope of his operations by way 
of compensation. The result was an artificial expansion 
of business, greatly to the detriment of the merchants, 
but to the advantage perhaps of the British consumer 
and manufacturer and certainly greatly to the profit 
of the Chinese producer and merchant. These exploited 



HISTORICAL INTRODUCTION 19 

to the full the competition among foreign buyers, who 
were helpless in the hands of the native dealer, since 
the latter was enabled by his excellent gild organization 
to maintain a strong control over the local markets and 
to keep up prices.^® The control of the whole trade was 
fast getting into the hands of natives, last not least, 
through the foreigner's ignorance of language, while the 
foreigner began to decline to the position of a mere 
agent, and profits and influence dwindled together. The 
Chinese evidently were already discovering that there 
are other means than riot and open opposition for the 
ousting of the foreigner, — means that cannot be touched 
by force or treaty. 

The increase of trade, furthermore, depended on the 
expansion of the area and population open to British 
trade rather than on the increased use of English goods. 
"If we consider the vastness of the native population 
within reach of our goods at the opening of the trade, 
we are forced to the conclusion that we were no nearer 
capturing the native markets, in the sense of supplying 
the everyday needs of the masses, in 1884 than in 1834. 
. . . The economic self-sufficiency of China was perhaps 
the most formidable barrier which we had as yet encoun- 
tered in our career of industrial and commercial expan- 
sion." 20 

^•See Schumacher, " Weltwirtschaf tliche Studien," pages 430 ff. 
in : " Die Organisation des Fremdhandels in China." 
2« Sargeant, op. cit., pages 224, 225. 



20 FOREIGN FINANCIAL CONTROL IN CHINA 

Looking back over the whole history of foreign rela- 
tions with China since the abolition of the East India 
Company's trading monopoly, a few marked results 
clearly stand out : The most satisfactory result was the 
establishment of foreign financial control over the mari- 
time customs service, which, however, should prove of 
greatest value and service at a later period and which 
will be duly referred to at the proper occasion. Further- 
more, the principle of extraterritoriality was introduced 
in China. Though it had proved absolutely necessary 
for the protection of the foreigner, it put a stigma of 
inferiority on the diinese which is evident in all further 
dealings between China and the foreign powers. It re- 
versed the position of China which formerly was one of 
overbearance and contempt for the " barbarian." But 
treaties could neither alter national feelings and long- 
established customs, nor could they strengthen the inher- 
ent weakness of the Manchu administration and official 
corruption. Truly enough, tolerable conditions for com- 
mercial intercourse were established. Nevertheless, the 
Chinese trade, upon which great hopes had been founded, 
remained comparatively insignficant and unsatisfactory 
considering the sacrifices and risks incurred to develop 
it; while the experience revealed that it is impossible to 
create that trade by force of pressure or by treaties. 
Indeed, Europe used only a moderate amount of pressure 
in imposing its own will upon the Chinese Empire, 



\< 



tv''^ 



HISTORICAL INTRODUCTION 21 

as Morse in a summary of the " Period of Conflict '* ^^ ^ 
emphasizes: "In time the world, East and West, will - r. 
recognize that the West has exercised great restraint and » t.^ ' 
shown a wise moderation in reaping the fruits of victory, 
and that the restrictions imposed on Chinese sovereignty 
were only those rendered indispensable by the inefficiency I ' ^^■ 
and corruption of the mandarinate of the Empire; but ; 
this was a lesson for future years; now, as the result 
of three wars, the Chinese learned, and they accepted as 
their law, that, whereas formerly it was China which 
dictated the conditions under which international rela- 
tions were to be maintained, now it was the Western 
nations which imposed their will on China." 

The policy adopted by the British Government follow- 
ing the Treaty of Tientsin was one of non-interference. 
It was fotmd advisable to consolidate what was already 
gained, and for the future to trust to patient negotiation 
and moral influence. A reaction of discouragement had 
set in, which found its expression in a policy of laisser- 
f aire adopted by the Home Government after the removal 
of Lord Palmerston from the Foreign Office. This pol- 
icy also reflected a belief in China's ability ultimately to 
set her own house in order and a desire to be on friendly 
terms with other nations and to avoid any causes of fric- 
tion. 

In accordance with the laissez-faire and free-trade 

21 See Morse, " International Relations/* page 617. 



•J 



22 FOREIGN FINANCIAL CONTROL IN CHINA 

principles England was ready, after having obtained new 
outlets for trade and other privileges, to share them with 
other nations. Thus her acquisition of trade facilities 
was followed by the conclusion of similar treaties be- 
tween China and other Powers. Britain had solved the 
problem of the conditions most favorable to national 
prosperity in her way, believing that open competition 
was the best condition for ensuring such prosperity. 
Wherever free-trade existed it meant British preponder- 
ance; and the predominance of England in China was 
admitted on all hands. Consequently, Great Britain 
did not attain exclusive privileges for the benefit of her 
trade and she strove by means of the "most favored 
nation " clause only to enjoy such privileges as have been 
accorded to other nations and no more. And she also 
was willing to refrain from the exaction of further priv- 
ileges. 

Thus her policy, however, had to undergo a moderation 
as soon as other countries began to seek special advan- 
tages at the expense of their competitors and of China. 
French aggrandizement in Tongking, and the declaration 
of a protectorate over Annam were followed by the 
Franco-Chinese Treaty of Tientsin, in June, 1885, which 
seriously affected British interests in setting up differen- 
tial duties in favor of France and in defiance of English 
treaty rights. ^^ 

22 See Mayers, op, cit., page 339. 



HISTORICAL INTRODUCTION 23 

The British Government could not view without con- 
cern the prospect of differential treatment for French 
goods entering China by way of the land frontier, and 
the danger of railway concessions leading to commercial 
monopoly. Frequent protests and warnings were ad- 
dressed to Peking; and the Chinese were ready enough 
to give assurances representing wishes, which they were 
xmable to carry out in the face of France's superior force. 
The only effective reply to the French claims then, it was 
held, was to be found in the grant of counter-conces- 
sions by China to England; and so the English secured! 
a series of concessions and advances parallel to those 
granted to France, and in the same region. The agree- 
ments of 1886, 1890, 1893, 1894 and 1897^^ opened 
trade and residence to British officials at Yatung, recti- 
fied the Burmese frontier, organized overland trade, 
opened the West River to seaborne trade, Wuchau being 
declared a treaty port. The most important result of 
English diplomacy was the passing of Burma, thereto- 
fore under Chinese suzerainty, under complete British 
rule through the so-called O'Connor Convention of July 
24, 1886.^ By Article II China agreed " that, in all 
matters whatever appertaining to the authority and rule 
which England is now exercising in Burma, England 

28 See Mayers, op. cit., pages 251 ff., and see also Rockhill, " Trea- 
ties and Conventions/* Nos. i and 7. 
"See "China," No. 5, 1886, C — 4861. 



24 FOREIGN FINANCIAL CONTROL IN CHINA 

shall be free to do whatever she deems fit and proper." 
In 1890 Sikkim followed the way of Burma. 

But while the dependencies of China were dropping 
from her in the south and southwest and while Korea 
was preparing her independence, the conclusion of the 
Chino-Japanese War marked the beginning of a series 
of new events and the recognition of new political prob- 
lems concerning China proper. The war disclosed the 
utter military weakness of the Manchu Government, 
and several great Powers were not slow in taking ad- 
vantage of this fact by disintegrating Chinese territory 
and pressing China for special and exclusive advantages. 
The most important event at this time was the occupation 
of the Liaotimg peninsula and Port Arthur by Russia, 
an occupation which had long been determined on and 
which enabled Russia to obtain a stronger influence over 
the Chinese at Peking. The occupation was preceded by 
the seizure of Kiaochau by Germany, which had been 
well aware of Russia's ambitions, and was immediately 
followed by similar actions of Great Britain and 
France. 

By this territorial aggression the old method of nego- 
tiating by force was revived. But while the armed inter- 
ference of Great Britain in former periods had secured 
equal opportunities to all other nations, the actions of the 
powers in the years 1 897-1 898 proved to be of an indi- 
vidual and selfish character. They disclosed the growth 



HISTORICAL INTRODUCTION 25 

of the new principle of preferential concessions, develop- 
ing into the policy of " spheres of interest." Before long 
we find Germany maintaining that Shantung, as the 
hinterland of Kiaochau, could not be open without re- 
serve to the enterprise of others than Germans. Almost 
at the same moment, Russia was annoimcing that she 
would not permit the Chinese provinces bordering on the 
Russian frontiers to come under the influence of any 
other nation. She was pressing on to the economic as 
well as the political control of north China. While 
France was aiming at the south, Japan claimed pre- 
dominance in Fukien, and England in the Yangtsze- 
Kiang region. 

All these concessions were extorted from China prac- 
tically without any compensation. Stripped of her 
power, China had to pay the penalty of an tmsuccessful 
war, and was forced to grant such privileges which she 
had hitherto steadily refused. The concessions were 
either granted without excuse, or they were the penalties 
of acts of violence on the part of the Chinese subjects, 
the missionary being a favorite pretext. But the pen- 
alty was usually out of all proportion to the crime, and 
China had reason for regarding the policies adopted by 
the European Powers as an open attack on the independ- 
ence of the Empire. And indeed the independence and 
integrity of China seemed to have been severely menaced, 
for it is evident that the vision of a " break up of China " I 



26 FOREIGN FINANCIAL CONTROL IN CHINA 

played a great role in the imagination of European 
statesmen. 

At the same time the commercial and financial world 
was stirred with splendid visions of the long-deferred 
unconditional opening-up of China, and finance began to 
display interest in a country which presented unusual eco- 
nomic attractions. In this connection it is necessary to 
bear in mind the tremendous economic changes which 
had taken place in Europe towards the end of the nine- 
teenth century. The immense development of the eco- 
nomic resources of Europe and the overproduction of 
capital resulted in an unprecedented outflow of capital 
to all parts of the world. The perfection of the joint 
stock company, and the general recognition g^ranted to 
\ this form of organization, made it possible for capital 
I successfully to undertake in distant lands enterprises 
which could not otherwise have been undertaken. The 
private speculator and especially the great financial inter- 
ests appear in China and behind the latter is the whole 
diplomatic force of their respective countries; or the 
governments appear as the economic patrons of their 
subjects and promote or encourage financial enterprises 
in China. Finance takes the role which trade so success- 
fully had played in its connection with foreign policy, 
the great and principal objects of finance being railway 
I enterprises and political loans. Such were the economic 
I forces behind the " battle of concessions." 



CHAPTER II 



GREAT BRITAIN 



The aim of Britain, the greatest Asiatic power, was 
the maintenance of her economic preponderance. Since 
her interests existed in every port and her trade flourished 
in every province, she was bound to resent the attempt 
at closing any portion of China to her trade, and she had 
to oppose any measures which might tend to give undue 
advantage to another power. The policy of England, 
under the leadership of Lord Salisbury, was that knowt^ 
ai the " open door " policy, its signification being that the 
door of trade should be kept open for Great Britain in 
every place where it was made available to any other 
country in China. To the demands for an " open door '* 
were added the watchwords : " integrity of China " and 
"equal opportunity," all of which are constantly reap- 
pearing in the newspapers,^ and in the official corre- 
spondence concerning the affairs of China. ^ But the Brit- 
ish Government had to go beyond the mere proclamation • 
of these principles, as long as other nations did not 
respect them. When Germany leased the territory of 

* See, for instance, London Times, April 6, 1898, and otherwise. 
« See " China." No. i, 1899, Vol. CIX. 

37 



28 FOREIGN FINANCIAL CONTROL IN CHINA 

Kiaochau, Russia Port Arthur and Talienwan, and 
France Kuangchouwan, England was apparently unable 
to raise effective objections and resolved to follow the 
example of the others. The foreign office was especially 
worried about Russia's advance in the north, since Rus- 
sia was considered England's great opponent in Asia. 
Lord Salisbury declared that " the balance of power in 
the Gulf of Pechili is materially altered by the surrender 
of Port Arthur by the Yamen to Russia." ^ The English 
^therefore entered into negotiations with the Yamen which 
resulted in the leasing of the harbor of Weihaiwei to 
England. A convention was signed on the first of July, 
1898: " In order to provide Great Britain with a suit- 
able naval harbor in North China and for the better pro- 
tection of British commerce in the neighboring seas." * 
Of great significance for Great Britain's policy is the 
I clause in the first paragraph in which China agrees to 
lease Weihaiwei " for so long a period as Port Arthur 
shall remain in the occupation of Russia." 

In the meantime French plans had expanded with the 
success of their policy of pressure. France demanded 
^the right to construct a railway from the Tongking fron- 
tier to Yunnan and a few other privileges, whereupon 
the British Government adopted the policy of counter- 
concessions. British poHcy and British demands are 

8 See " China," No. i, 1898, Vol. CV, page 54. 
* See " China," No. i, 1899, Vol. CIX, page 199. 



GREAT BRITAIN 29 

illustrated in the instructions of Mr. Balfour to Sir C. 
MacDonald of April 13, 1898: *^ "Inform Yamen that, 
although they have not followed our advice, we are 
anxious to maintain, as far as possible, integrity of 
China, and will, therefore, not make new territorial de- 
mands upon them. It is, however, absolutely necessary, 
if we are to pursue this policy, that they, on their side, 
should first immediately conclude negotiations — (a) for 
giving us all the land required for military defenses of 
Hongkong; (b) to fulfill their promise to make Nan- 
king a Treaty port; (c) to give some railway concession; 
(d) an agreement as to the non-alienation of Kuang- 
tung and Yunnan. In connection with condition (d), 
it is in the interests of the integrity of China and is 
justified by the proximity of Ytmnan to Burma, and 
by our commercial preponderance in Kuangtung." 

The first result of British demands was a convention 
for the extension of Hongkong, signed on June 9,* 
1898,' by which China granted a lease for ninety-nine 
years of 400 square miles of territory in the peninsula 
of Kowloon, immediately opposite to Hongkong. As 
to railway concessions mentioned by Mr. Balfour, Eng- 
land foimd herself soon in a position to press her de- 
mands, when the Peking-Hankow concession menaced 
England's interests in the Yangtsze Valley. 

5 See " China," No. i, 1899, Vol. CIX, No. 21. 
•See "China," No. i, 1899, Vol. CIX, No. 174; see also Rockhill, 
op. cit.. No. 12. 



30 FOREIGN FINANCIAL CONTROL IN CHINA 

One of the first things undertaken by the British 
after the ratification of the Treaty of Tientsin, had been 
the exploitation of the Yangtsze-Kiang. Since British 
interests along the great valley were greater than those 
of other countries and as it was alike the most fertile, 
prosperous and densely populated region of China, it was 
essentially the most important British sphere of interest 
in that country. Hence the British Government, in or- 
der to prevent eventual inroads of other powers into this 
territory, exchanged in February, 1898, notes with the 
Chinese Government respecting the non-alienation of the 
Yangtsze-Region.'' In this correspondence, which in its 
character is extremely vague, China gives an assurance 
^that she would "never alienate any territory in the 
provinces adjoining the Yangtsze to any other power, 
whether under lease, mortgage, or any other designa- 
tion." The conclusion of the agreement was highly wel- 
comed by the British interests in China. Thus writes 
the China Association to Lord Salisbury : " The Asso- 
ciation has ventured on former occasions to indicate the 
Yiang^sze Valley as a region in which British interests 
must prevail. It welcomed with cordial satisfaction, 
therefore, the announcement that China had been led to 
promise that no portion of that area should be leased or 
ceded to a foreign power." ® 

7 See " China," No. 2, 1898, Vol. CV ; see also Rockhill, op. cit.. 
No. 22. 
»"See " China," No. i, 1899, Vol. QX, No. 25. 



GREAT BRITAIN 31 

British interests now were menaced, when, in 1897, a 
Belgian syndicate obtained a provisional concession for * 
the great trunk line from Peking to Hankow.*^ There 
was clearly ground for Great Britain to be alarmed that^ 
Belgium served the plans of France and Russia. Lord 
Salisbury declared that " a concession of this nature is 
no longer a commercial or industrial enterprise and 
becomes a political movement against the British interests 
in the region of the Yangtsze. You should inform the 
Tsungli-Yamen that Her Majesty's Government cannot 
possibly continue to cooperate in a friendly manner in 
matters of interest to China, if, while preferential ad- 
vantages are conceded to Russia in Manchuria and to 
Germany in Shantung these or other foreign Powers 
should also be offered special openings or privileges in 
the region of the Yangtsze. Satisfactory proposals will 
be forthcoming if the Chinese Government will invite the 
employment of British capital in the development of 
those provinces." ^® Mr. MacDonald strongly protested, 
whereupon the Yamen assured the British minister that 
the Russians were not interested in the scheme, and that 
no agreement admitting the Russo-iChinese Bank to par- 
ticipation would ever receive the Imperial sanction.^^ In 
spite of all protests the Chinese signed the final contract* 
of the Peking Hankow Railway early in August, admit- 

• See Rockhill, op. cit, No. 34. 

10 See " China," No. i, 1899, Vol. CIX, No. 175. 

11 See " China," No. i, 1899, Vol. CIX, Nos. 196, 263, 289. 



32 FOREIGN FINANCIAL CONTROL IN CHINA 

ting the Russo-Chinese Bank to financial participation.^^ 
The greatest objection which the British raised to the 
contract was that the receipt and payment of funds by 
the Russo-Chinese Bank, on behalf of the syndicate, 
would pave the way to a future interference with the 
construction and control of the line. Mr. MacDonald 
declared Russian admittance a " breach of faith " on the 
side of the Chinese and demanded " reparation." He 
informed the Yamen that " Her Majesty's Government 
considered that they had been badly treated by China in 
the matter of railway concessions, and now demanded 
from the Chinese Government the right for British 
merchants to build the following lines upon the same 
terms as those granted in the case of the Belgian line : — 
Tientsin to Chinkiang (to be shared, if desired, with the 
Germans and Americans), Honan and Shansi, Peking 
syndicate lines to the Yangtsze; Kowloon to Canton; 
Pukou to Sinyang; Soochow to Hangchow, with ex- 
tension to Ningpo. The lines from Shanghai to Nan- 
king, and Shanhaikuan to Newchwang, I added, were 
not included in this list, as preliminary agreements had 
already been signed for them, and they might be con- 
sidered settled.*' ^^ Mr. Balfour's instructions further- 
more illustrate the great amount of pressure exacted by 
Great Britain. Mr. MacDonald was authorized to in- 

12 See " China," No. i, 1899, Vol. OX, Nos. 347 and 383. 
18 See " China," No. i, 1899, Vol. CIX, No. 382. 



GREAT BRITAIN 33 

form the Yamen that, "unless they agree at once, we 
shall regard their breach of faith concerning the Peking- 
Hankow Railway as an act of deliberate hostility against 
this country, and shall act accordingly. After consulta-,-^ 
tion with the Admiral, you may give them the number 
of days or hours you think proper within which to send 
their reply/' ^* 

The Yamen, being aware of the concentration of the 
fleet, conceded everything. ^'^ Thus did Great Britain ob- 
tain her railway concessions. The total length of the 
lines conceded amounted to 2,800 miles extending over ten 
provinces, as compared to 1,530 Russian miles, the rest 
of the nations falling way below the Russian figure.^® 
To England fell the lion's share of the " battle of con- 
cessions," as Lord Salisbury properly styled this " peace- 
ful " conflict." 

But with that the " battle of concessions " was not 
finished. Russia considered Manchuria and Pechili her^ 
exclusive sphere of interest. She therefore pressed Pe- 
king for the removal of Mr. Kinder, an Englishman, 
from his position as superintendent of the Tientsin-Shan- 
haikuan Railway, demanding that the " line north of 
Shanhaikwan should be constructed by Russian engineers 
and with Russian capital." ^® Ignoring Russian de- • 

1* See " China," No. i, 1899, Vol. OX, No. 286. 
i» See " China," No. i, 1899, Vol. CIX, No. 324. 
*« Detailed analysis will be given below. 
1^ See " China," No. i, 1899, Vol. OX, No. 232. 
i« See " China," No. 2, 1899, Vol. CIX, No. 2. 



34 FOREIGN FINANCIAL CONTROL IN CHINA 

mands, the Hongkong and Shanghai Bank entered into 
an agreement to furnish the capital to construct a railway 
between Peking and Newchwang, taking a mortgage on 
the line.^® This caused much irritation in Russia and the 

^relations between Russia and England became more 
strained than they were before. The friction which had 
arisen over railways rendered it desirable to come to an 
understanding in regard to mutual privileges and spheres 
of interest in China. After a long series of negotiations 

^n exchange of notes was effected between the two coun- 
tries in April, 1899.^^ The text of the agreement is as 

c follows: ** I. Great Britain engages not to seek for 
her own accoimt, or on behalf of British subjects or of 
others, any railway concessions to the north of the Great 
Wall of China, and not to obstruct, directly or indirectly, 
applications for railway concessions in that region sup- 
ported by the Russian Government. 2. Russia, on her 
part, engages not to seek for her own account, or on 
behalf of Russian subjects or of others, any rail- 
way concessions in the basin of the Yangtsze, and 
not to obstruct, directly or indirectly, applications for 
railway concessions in that region supported by the 
British Government." By a supplementary note, the 

* rights of the British and Chinese Corporation, un- 
der the loan contract, over the section from Shan- 

i» See " China," No. 2, 1899, Vol. CIX, Nos. 4 and 10. 
20 See " China," No. 2, 1899, Vol. CIX, No. 129. 



GREAT BRITAIN 35 

haikuan to Newchwang were reserved, " and the Chi- 
nese Government may appoint both an EligHsh engfi- 
neer and a European accountant to supervise the con- 
struction of the line in question, and the expenditure of 
the money appropriated to it. But it remains understood ♦ 
that this fact cannot be taken as constituting a right of 
property or foreign control, and that the line in question 
is to remain a Qiinese line, under the control of the Chi- 
nese Government, and cannot be mortgaged or alienated 
to a non-Chinese company! " With this agreement the 
" sphere of interest " theory was considerably strength- 
ened. 

In the case of the other trunk line from the north, 
that from Tientsin to Chinkiang on the Yangtsze, Eng-» 
land inevitably came into collision with the interests of 
Germany. The English were bidding for construction 
or at least participation in construction of this line. The 
German minister, in 1898, was objecting that no line^ 
could be constructed through Shantimg without the con- 
currence of Germany. In August, 1898, Baron Heyking 
informed the British minister of his instruction from his 
home government, of which the respective passage reads 
as follows : " Should the Chinese Government decide 
to grant a concession for the Tientsin-Chinkiang Railway 
regardless of German claims, you are instructed to op- 
pose such a decision, and, should it be necessary, you may 
inform the Chinese Government that the German Gov- 



36 FOREIGN FINANCIAL CONTROL IN CHINA 

emment would consider as ' non avenu ' any concession 
in that province, and would reserve the right of making 
the Chinese Government responsible for any such conces- 
sion in the event of its being granted by them." ^^ It has 
to be remarked here, that England as early as April, 

^ 1898, had formally declared to Germany: " that in estab- 
lishing herself at Weihaiwei she has no intention of 
injuring or contesting the rights and interests of Germany 
in the Province of Shantung, or of creating difficulties 
for her in that province; It is especially understood 

-rthat England will not construct any railroad communica- 
tion from Weihaiwei and the district leased there- 
with into the interior of the Province of Shantung." ^^ 
But a mutual official declaration as to the respective 
spheres of interest had not taken place. Both govern- 
ments considered that a specific delimitation would " not 
be opportune, and that a friendly understanding in each 
case as it arose would be preferable." ^^ Such friendly 
compromise was finally concluded between the respective 
German and British financial interests, on Sept. ist and 
2nd, 1898, at London. The text reads, in parts, as fol- 

'^ows : ^* 

I. British sphere of interest, viz.: 

" The Yangtsze Valley subject to the connection of the 

21 See " China," No. i, 1899, Vol. OX, No. 305. 
aa See " China," No. i, 1899, Vol. CIX, No. 31. 
a» Sec " China," No. i, 1899, Vol. CIX, No. 307. 
2* See " China," No. i, 1899, Vol. OX, No. 312. 



GREAT BRITAIN 37 

Shantung lines to the Yangtsze at Chinkiang; the prov- 
inces south of the Yangtsze ; the Province of Shansi with 
connection to the Peking-Hankow line at a point south 
of Chengting and a connecting line to the Yangtsze Val- 
ley, crossing the Hoangho Valley." 

2. German sphere of interest, viz. : 

" The Province of Shantung and the Hoangho Valley 
with connection to Tientsin and Qieng^ing, or other 
point of the Peking-Hankow line, in the south with con- 
nection to the Yangtsze at Chinkiang or Nanking. The 
Hoangho Valley is understood to be subject to the con- 
necting lines in Shansi forming part of the British sphere 
of interest, and to the connecting line to the Yangtsze 
Valley, also belonging to the said sphere of interest.'* 

This was agreed to with the modification that the line 
from Tientsin to Qiinkiang be financed jointly, con- 
structed separately according to the respective spheres 
through which the lines were to run, and, on completion, 
to be worked for joint account. 

The various railway questions had led to many crit- 
ical moments for Great Britain in 1898. In order to 
protect her own interests, she was forced to desist some- 
what from the traditional open door policy. Standing 
alone she had to fear that she might not be able to * 
sustain China's absolute integrity against the aggression 
of other powers. A imion of aim between her and any 

m 

Other nation or a combination of nations she recognized 



38 FOREIGN FINANCIAL CONTROL IN CHINA 

would go far to end the rivalries which threatened to par- 
tition China. Consequently, she eagerly seized the op- 
4)ortunity of expressing her adherence to the open door 
policy in replying favorably to Mr. Hay's propositions 
of 1899.^* The United States, though it has never taken 
an active part in the opening up of China, had gradually 
developed a very considerable interest in the country, 
which it was eager to see preserved. In this year the 
United States sent a circular letter to the European 
Powers to seek information as to the possibility of com- 
ing to an understanding in regard to the maintenance 
of treaty rights, and the safeguarding of the integrity of 
the Empire. The requirements of the policy of equal 
opporttmity known as the *' open door " were categoric- 
ally set out in this circular,^® with the object of obtaining 
the definite adherence of the various powers to its sup- 
port. The replies of all the powers concerned was in the 
affirmative. England's attitude is expressed by Lord 
Salisbury in his acknowledgment of the last of the com- 
munications from the American minister : " I may assure 
Your Excellency that the policy consistently advocated by 
this country is one of securing equal opportunity for 
the subjects and citizens of all nations in regard to com- 
mercial enterprise in China, and from this policy her 
Majesty's Government has no intention or desire to de- 

25 See Rockhill, op. cit., No. 28, and Malloy, op. cit., I, 244 ff. 
2« See Chapter VII. 



GREAT BRITAIN 39 

part." *'' A similar policy was contained in an agree- 
ment identical in its contents to the note of Mr. Hay, 
concluded between Great Britain and Germany in Octo- 
ber, 1900.^ 

The unfortunate Chinese officials in the meantime had 
learned that in spite of all the assurances of the for- 
eigners, friendly intercourse might be as dangerous as 
open hostility. They took the lessons of the extorted 
concessions to heart and attempted to apply their experi- 
ence in dealing with the railway problem. Fearing that 
railways constructed by foreign capital might later be * 
made an excuse for territorial claims, they put every pos- 
sible obstacle in the way of such undertakings. Thus 
they steadily refused the promised British concessions in 
Yunnan and decided towards the end of 1898 not to 
give any new railway concessions exclusively to foreign- 
ers. To that end they issued regulations on November 
19, 1898, for mines and railways in China, which throw • 
light on the real motives of Chinese policy.^® In these 
it was stated that the concessions in Manchuria, Shan- 
tung and Luzchan (referring to the Russian, German and 
French spheres) " are affected by international relations, 
and therefore will not be allowed to form precedents 
either for Chinese or foreigners." In Article 9 it is re- 
quired that Chinese capital was to be employed as far as 

*^ See Rockhill, op. cit, page 191. 
2« See Rockhill, op. cit, No. 14. 
2» Sec Rockhill, op. cit., No. 48, 



AO FOREIGN FINANCIAL CONTROL IN CHINA 

possible, and that in all cases of concessions an endeavor 
must be made to have the Chinese part of the capital in 
such enterprises the greater proportion, at least a mini- 
mum of three-tenths of the total. By another rule, as 
an inducement to the natives, rewards were to be granted 
to Chinese promoters raising a capital of 500,000 taels, 
or contriving that half the shares in a company were 
Chinese-owned. The essence of the whole matter was 
# summed up in the thirteenth clause : " In order to pro- 
ject the sovereign rights of China, the control of all 
^ihvays and mining companies, irrespective of the for- 
^eign capital concerned, must remain in the hands of the 
Chinese merchants." The regulations clearly meant noth- 
ing else than an absolute bar to the further investment of 
foreign capital. China once more tried to rid herself 
from the grip of foreign influence. But she found her- 
*self unable to do so. 

While they were not at all without success as far as 
concessions are concerned they became, on the other 
hand, more and more dependent upon the foreigners in 
another phase of finance. The financial necessities of 
J^liina, a result of the Japanese War, and the indemnity 
had provided another means of dependence on the for- 
eigners and a new lever for inducing the acceptance of 
western demands. The different loans contracted in 
^this connection amoimted to L54,45 5,000 and were di- 
vided into one Franco-Russian Government loan and 



GREAT BRITAIN 41 

two joint Anglo-German Government loans of 1896 and 
1898, each being Li6,ooo,ooo.*® The maritime ctistoms 
served as security under the Inspector-General of Mari-' 
time Customs. A special assurance to Great Britain was 
that the Inspector should be an Englishman so long as* 
England should maintain her preponderance of trade.*^ 
This was necessary since Russia was trying to insist on 
a Russian for the post, which until then had so success- 
fully been administered by Sir Robert Hart. 

The permanent foreign pressure for concessions, the 
territorial acquisitions and the constant attempts at intro- 
ducing western ideas into China, or in other words, the 
period of 1897-1898, had brought about ia strong anti- 
foreign sentiment all over China. The result was the 
Boxer Rebellion of 1900. Referring to its causes, 
Lancelot Lawton quotes from one of the proclamations 
issued by the rebel leader Yu Tung Chen, who wrote : ** 
'• These foreigners, under pretext of trading and teach- 
ing Christianity, are in reality taking away the land, 
food, and clothing of the people ; besides overturning the 
teaching of the sages, they are poisoning us with opium 
and ruining us with debauchery. Since the time of Tao 
Kuang, they seized our territory and cheated us out of 
our money; they have eaten our children as food and 

»oSce "China Year Book," 1914; see Chapter VIII. 
w See " China," No. i, 1899, Vol. CIX, No. 2a 
«« Lancelot Lawton, " The Empires of the Far East," Vol. I, page 
2. 



42 FOREIGN FINANCIAL CONTROL IN CHINA 

piled up the public debt as high as the hills; they have 

burnt our palaces and overthrown our tributary states, 

occupied Shanghai, devastated Formosa, forcibly opened 

Kiaochau, and now wish to divide up China like a 

" v^ melon." This passage shows that the Boxer rising 

^ , (j' fthough primarily fanatical in its aspect, was none the 

P^ ^N. less evidence of the awakening of a national spirit. But 

^:^ ^once more the Chinese were forced to recognize the 

'^ superiority of foreign arms and foreign methods. The 

rebellion resulted in humiliation for China. 

In connection with the Boxer event and its sequels 
there are two points of supreme interest The first is 
the resulting political constellation. The campaign dis- 
*fclosed Russia's diplomatic duplicity. Her policy was to 
rback up the Chinese against the European Powers in 
order that she might pose as the protector of China for 
her own ends. She displayed a friendship for China and 
a protective attitude directed against foreign, especially 
English, aggression.^* 

England was well aware of the menace which Russia's 
policy meant to her. She saw in Russia her traditional 
enemy more than ever. She strongly resented the for- 
ward policy of Russia in China, but found herself unable 
to check it single handed. Consequently she looked for 
an alliance which might restore the equilibritun of power 
in the Far East. The ally she found in Japan. The 

«* See Chapter III. 



GREAT BRITAIN 43 

island kingdom considered itself equally menaced by ^ 
Russia's aggression, which already extended to the 
southern shore of Manchuria and which began to make 
itself felt in Korea, the independence of which kingdom 
was of vital interest to Japan. In seeking among the 
powers one who would support and finance her in active . 
opposition to Russia's, Japan's inclinations leaned to- 
wards Great Britain, who formerly had refused to join 
other powers in turning her out of Port Arthur. Great 
Britain, on the other hand, was almost forced to throw * 
in her lot with Japan, since Japan otherwise had to 
come to an imderstanding with Russia which would have 
destroyed the British position in China almost entirely. 
The Anglo- Japanese Offensive and Defensive Alliance • 
concluded on January 30, 1902, then, was intended to 
check the encroachments of Russia upon Northern China 
and adjacent territories and to safeguard British and 
Japanese commercial and financial interests in those re- 
gions ; ** or as the treaty expresses it : the two govern- 
ments are " specially interested in maintaining the inde- 
pendence and territorial integrity of the Empire of China 
arid the Empire of Korea, and in securing equal oppor- 
tunities in those countries for the commerce and industry 
of all nations." Its significance is, according to Aubert, 
the addition of a maritime sphere of influence policy to 
the already existing territorial sphere of influence policy, 

■* See Rockhill, op. cit, No. 16. 



I 



44 FOREIGN FINANCIAL CONTROL IN CHINA 

— the English sphere being the Indian Ocean and the 
Japanese sphere the seas of the Far Easf 

The second point of importance in reference to the 
Boxer rising, is the indemnity imposed upon China ac- 
cording to Article VI of the Final Protocol signed on 
completion of negotiations by the various Powers at 
Peking on September 7, igoi.'* The indemnity 

-» amounted to L67, 500,000, Great Britain's share being 
L7,425,ooo.''' It proved to be a tremendous burden 

^ upon China's budget. China certainly had to pay heavily 
for the Boxer rising, which, after all, was nothing else 
than a protest against the aggression of 1898. 

In Article XI of the Peking Protocol the Chinese 
tJovemment had also agreed to negotiate the amendments 
to the existing treaties of commerce and navigation 
deemed necessary by the foreign governments. Ac- 
cordingly Great Britain concluded on September 5, 1902, 
a new commercial treaty with China, the so-oJled 
Mackay Treaty, which provided for further trade facili- 
ties and opened a few new treaty ports.'® 

««L. Aubert, "Paix Japonaise," page 50: "A la politique des 
spheres d'influence territoriales en Chine, le traits anglo-japonais 
substitue une politique de spheres d'influence maritimes. D'Aden 
jusqu'au d6troit de la P6rouse, Anglais et Japonais se partagent 
la maitrise de la mer. Les mers extreme-orientales sont laiss^es a 
Tinfluence sp6ciale du Japon, tandis que TAngleterre fortifie sa posi- 
tion dans Tocean Indien; chacun son domaine/' 

8« See Rockhill, op. cit, No. 15. 

" See Chapter VIII. 

«8 See Rockhill, op. cit, No. 18. 



GREAT BRITAIN 45 

After the successful conclusion of the alliance with 
Japan, and the treaty with China, England could, at least 
for the time being, breathe freer. Having cleared the 
horizon of menacing clouds, the government left the long • 
deferred and hoped for expansion of trade and the devel- 
opment of the railroad schemes to the parties directly 
interested. Excepting official support given to the Hong- 
kong and Shanghai Banking Corporation and its allied * 
interests, the British Government retired from its labors, 
so to speak, and from now on did little in protecting or 
promoting national or individual interests. " Therefore 
when questions arose from the evasion or repudiation of ^ 
China's obligations in the matter of railways and mining 
enterprises, not to speak of everyday commercial cases, 
the nature of the support rendered by His Majesty's Gov- 
ernment took the form of permitting the parties con- 
cerned to make the best compromise possible and pro- 
claiming the results (when there were any) as triumphs 
of British diplomacy." •• 

It is of importance to know that British policy at this 
period, as on former occasions, continued to be influenced 
primarily by the English business world in China. The 
Chinese trade had gradually built up predominant local 
interests in the hands of a few powerful firms. While 
British foreign policy usually is largely directed by pub- 
lic opinion, the constant absence of any public opinion 

** Bland, op. cit, page 273. 



# 



46 FOREIGN FINANCIAL CONTROL IN CHINA 

regarding China, based on a lack of interest in this re- 
mote country, had caused the policy of the Foreign Office 
to be guided by the advice of the individuals and firms 
most prominently associated with China. It was as- 
sumed that those who had long experience and repre- 
sented special interests should frequently be consulted by 
the Foreign Office. The "China Association," for in- 
stance, has for many years rendered notable services to 
the advancement of Great Britain's interests in the Far 
East. It was this body that attracted Lord Salisbury's 
attention to the dangerous activities of France in south- 
em China and Russia in Manchuria.*® 

As the problems of China became more and more 
involved and complicated, and as railway construction 
and finance began, the activities of the vested interests 
naturally widened and added the cares of finance to the 
former protection of trade. " As a direct result of the 
situation," writes the Far Eastern Review, " arising from 
the keen struggle for railway concessions in 1898 to 
strengthen the political hold of the European powers on 
China, the organization of a purely British company be- 
came essential to act as the official instrument for the 
execution of the concessions extracted from the Chinese 
Government."*^ The forming of such company fell 
^naturally to the Hongkong and Shanghai Banking Cor- 

*o" China," No. i, 1899, Vol. aX, No. 25. 
♦1 " Far Eastern Review," Vol. 10, page 297. 



GREAT BRITAIN 47 

poration. This bank was the predominant British finan-^ 
cial institution, and its power can hardly be exaggera-ted, 
since the entire British community in China depended 
more or less on its credit facilities. 

The bank, having on its Board of Directors the 
princip^d partners of the great German trading firms, had 
up to this time been operating under an agreement with 
the official German Banking Syndicate for mutual partici- 
pation in administrative and railway loans to China.* ^ 
When the battle of concessions began and the " sphere of^ 
interest " policy became generally recognized, the Hong- 
kong and Shanghai Banking Corporation, foreseeing the 
great advantages and profits to be derived as the repre- 
sentative British organization for the railway develop- 
ment of British policy, terminated their working arrange- 
ment with the strong German syndicate, and the manager 
on April 4th, 1898, directed a note to the Foreign Office 
to the following effect : 

" I have the honor to acquaint you that the arrange- 
ments under which this bank has hitherto worked with 
the German Syndicate for the construction of railways 
in China has been terminated by mutual consent. It is 
now agreed that the German Syndicate and ourselves 
shall each work separately. 

" I may here mention that the German Syndicate, always 

*2Sec Kent, "Railway Enterprise in China," page 150. See also 
Chapter VIII. 



48 FOREIGN FINANCIAL CONTROL IN CHINA 

a powerful combination, has of late consolidated its posi- 
tion very much, and now includes all houses of any 
importance in Germany. It also enjoys the confidence 
of, and receives the support of, the German Govern- 
ment. 

" In order that British commercial interests may be 
fully represented, and that we shall be in a better position 
to cope with the powerful combination now opposed to us 
in China, the bank has decided to form a strong repre- 
sentative and influential Syndicate to deal with railway 
construction in China. . . . 

" In the meantime, I trust the explanation I have g^ven 
will warrant you in giving the necessary instructions to 
Sir Claude MacDonald to give Messrs. Jardine, Mathe- 
son and Co., and the bank such support as they may 
require.'' *^ 

The result of this letter was the early organization of 
the British and Chinese Corporation, Ltd., formed by the 
Hongkong and Shanghai Banking Corporation and the 
firm of Jardine, Matheson and Co. This strong, repre- 

^ sentative and influential syndicate has been able since 
to command, with the exception of the Peking Syndicate 
— whose activities however lay in another direction — a 
monopoly of the British Government's support. This 

♦ corporation contracted henceforth with the Chinese Gov- 
ernment the construction of all the great British built 

" See " China," No. i, 1899, Vol. QX, No. 5. 



GREAT BRITAIN 49 

railroads in China. " From time to time," says the Far 
Eastern Review, " other British railway constructors en- 
deavored to secure a footing in China, but were compelled 
to retire after severe financial losses and leave the field 
to the undisputed control of the official commercial organ- 
ization." *^ Exclusive official support was still enjoyed 
during the international loan negotiations, when the Brit- 
ish Government repeatedly assured the syndicate of its 
protection.*^ And it was mainly owing to the failure of 
these negotiations that the field for financial enterprise 
was finally opened to other British concerns. 

The monopoly exercised by the syndicate within the 
British sphere and luider Government support was a 
monopoly of rights to contract railway construction at 
the exclusion of non-British as well as other British 
interests. On the strength of this monopoly the syndi- 
cate concluded agreements with the Chinese Government, 
by which it was granted a certain amount of " control " 
to be exercised within the sphere. " Control " indeed 
was uppermost in the minds of the syndicate as well as 
of the British Government. The fact that " foreign con- 
trol " was assured in the Peking-Hankow agreement, 
that foreign political influence might menace British pre- 
ponderance in the Yangtsze Valley, and that " by differ- 
ential rates and privileges the managers of the railways 

** Sec " Far Eastern Review," Vol. X, page 298. 
" See "China," No. 2, 1912, Vol. CXXI, No. i to 7; see also Chap- 
ter VIII. 



so FOREIGN FINANCIAL CONTROL IN CHINA 

may strangle our trade " worried British officials con- 
siderably.*® Terms and privileges equal to those ac- 
corded to other nations were vehemently demanded. 
But we have to emphasize that the British Government, 

•though it had forced the Chinese Government to grant 
railway concessions to British subjects within the sphere, 
had no part whatsoever in construction or control and 
it was not even a party to the signing or wording of 
the railway agreements or other contracts — with the 
exception of railways and also loans to be under interna- 
tional control.*'' 

To determine the amount and degree of control exer- 
cised by the British syndicate we now have to turn to 
the respective clauses of the railway agreements. The 
first railway contracted was the section Shanhaikuan- 
^ Newchwang of the Imperial Railways of North China. 
The preliminary agreement was signed on June 7, 1898, 
and the final railway loan agreement on Oct. 10, 1898, 
between the syndicate and the Administrator General 
of the Railways of North China, acting under authority 
of the Imperial Chinese Government.*® The principal 
clauses, establishing control, read as follows: 

In Article i : The Corporation agrees to issue on be- 

Tialf of the Administrator-General a sterling loan for the 

« See " China," No. i, 1899, Vol. aX, Nos. 135 and 232. 

*7 See Chapter VIII. 

^" See Rockhill, op. cit., Nos. 42 and 46. 



GREAT BRITAIN 51 

amount of L2,300,ooo. (The term of the loan being 45 
years: Art. 9.) 

In Article 3 : This loan shall be a first charge upon 
the security of the permanent way, rolling stock, and 
entire property, with the freight and earnings of the ex- 
isting lines between Peking and Shanhaikuan, and on the 
freights and earnings of the new lines when constructed. 

In Article 4 : The principal and interest of this loan 
are guaranteed by the Imperial Government of China? 
and in the event of default in payment of interest or re- 
payment of principal at due date, the Corporation shall 
immediately notify the Imperial Government of China 
thereof, and the Imperial Grovemment of China will 
thereupon provide the funds necessary to meet such pay- 
ment in sterling in London. In the event of the Imperial 
Government of China being unable to provide the funds* 
necessary to meet a payment of interest or principal, when 
called upon by the Corporation to do so in terms of this 
clause, the said railway lines and the entire property shall 
thereupon be handed over to the representatives deputed 
by the Corporation to manage, on their behalf, until prin- 
cipal and interest of the loan have been redeemed in full, 
when the management will revert to the Railway Admin- 
istration. ... 

This arrangement, which differs from other contracts 
in that the Administrator-General retains control of the t 
railway lines so long as the principal and interest of this 



52 FOREIGN FINANCIAL CONTROL IN CHINA 

loan are regularly paid, has been agreed to in consequence 
of the friendly relations which have long existed between 
the Contracting Parties. 

In Article 6: During the currency of this loan the 
* Chief Engineer of railway shall be a British subject. 
The principal members of the railway staff shall be cap- 
able and experienced Europeans, who shall be, as at 
present, appointed by the Administrator-General of the 
Railways. . . . 

In addition to the above, a capable and efficient Euro- 
•pean Railway Accountant shall be appointed, with full 
powers to organize and direct the keeping of the railway 
accounts, and to act with the Administrator-General and 
the Chief Engineer of the railway in the supervision of 
receipts and expenditure. 

In Article 8: All receipts and earnings of the lines 
herein specified shall be paid into the credit of the Rail- 
way Administration with the Hongkong and Shanghai 
Banking Corporation, Tientsin. . . . 

In reimbursement of expenses incurred in connection 
with the distribution of the service to the bondholders of 
the principal and interest of the loan, the Hongkong and 
Shanghai Banking Corporation, Tientsin, shall receive 
from the Railway Administration a commission of J4 
per cent, on the annual loan service, which will be in- 
cluded in the yearly Schedule for the same. 

Jin Article 14: All bonds and coupons and payments 



GREAT BRITAIN 53 

made and received in connection with this loan shall be 
exempt from Chinese taxes and imposts forever. 

The next railway of importance contracted was the 
line from Shanghai to Nanking. The preliminary agree- 
ment was signed on May 13, 189^, and the final agree- 
ment on July 9, 1903, both between the syndicate and 
the Director General of the Chinese Imperial Railway 
acting under authority of the Imperial Chinese Govern- 
ment. The final agreement provided in particular for . 
the following terms : ^® The corporation agrees to issue a 
loan not exceeding L3, 2 50,000, for which Chinese Gov- * 
emment Bonds are to be issued. The duration is fifty 
years. The Chinese Railway administration undertakes 
to buy and pay for the land required. The loan shall 
be secured by mortgage on all lands, material, rolling 
stock, buildings and property and no further mortgage or 
loan shall be created on the said lines. In order to pro- 
vide for a final authority, a " Board of Control " is cre- 
ated to be composed of the Director General of the Chi- 
nese Railway Administration and nominee of his, to- 
gether with three representatives of the syndicate. The , 
Chief Engineer, at the same time Chief Administrator, 
shall be nominated by the syndicate with the concurrence 
of the Director General, and shall be paid by the Chinese 
railway administration. The residue of the net profits « 
in each year after paying the sum annually due for inter- 

*• See Rockhill, op. cit., No. 39. 



54 FOREIGN FINANCIAL CONTROL IN CHINA 

est and redemption of the loan and all other sums which 
may be due to the syndicate, shall be divided into five 
shares, one to be retained by the syndicate as remunera- 
tion for superintendence and services; the syndicate 
shall receive five per cent, on the entire cost of all ma- 
terials purchased for the railway. Finally it is to be 
^mentioned that all bonds are exempted from taxation. 
The money actually lent was L2, 2 50,000 in 1904 and 
L630,ooo in 1907.^^ 

The Canton-Kowloon Railway agreement between the 

• Board of Foreign Affairs of the Chinese Government 
and the British and Chinese Corporation, Ltd., concluded 
on the 7th of March, 1907, contains control provisions 
similar to those of the two preceding agreements.*^ Im- 

• perial Chinese Government bonds are to be issued for the 
amount of L 1,500,000 similar to the bonds of the Shang- 
hai-Nanking Railway, with the railway as first mortgage 
security therefor. The loan is to be secured by a specific 
and legal first mortgage in favor of the Corporation upon 
all lands, materials, rolling stock, buildings, property and 
premises, of every description purchased or to be pur- 
chased for the railway, and on the railway itself, as 
and when constructed, and on the revenue of all descrip- 
tions derivable therefrom. A British Engineer-in-Chief 

'and a British Chief accountant are to be associated with 

50 See " China Year Book," 1913, Chapter XVI. 

51 See Kent, op. cit, Appendix F, No. 4. 



GREAT BRITAIN 55 

the Chinese Managing Director. It is also agreed, that if 
interest or principal in accordance with the amortizatioir 
schedule is not paid on due date, the whole railway with 
all its appurtenances mortgaged to the Corporation for 
the bondholders, shall be handed over to the Corporation. 
The Corporation are appointed trustees for the bond-, 
holders. In remuneration for all services rendered by 
the Corporation, during construction, the Corporation 
shall receive the sum of L35,ooo. The handling of all 
funds is entrusted to the Hongkong and Shanghai Bank- 
ing Corporation. 

Next in importance to the agreements concluded by the 
British and Chinese Corporation come those concluded 
by the Peking Syndicate, a powerful Anglo-Italian cor- 
poration.®* Although the driving power of the syndi- 
cate was an Italian subject, Mr. Luzatti, the British For- 
eign Office used a considerable amount of " pressure " 
upon the Chinese Government towards obtaining the 
grant of the concessions in question.®^ By the agree- 
ment from May 21, 1898, the syndicate obtained the * 
sole right to open and work the coal and iron deposits 
of central and southern Shansi and Honan and the pe- 
troleum deposits of the entire province, and secured the 
right to construct and operate all necessary railways to 
maintain tnmk lines or navigable waters for exporting 

**2 See Kent, op. cit, Chapter XIII. 

*• See "China," No. i, 1899, Vol. CIX, No. 6, 106, and otherwise. 



S6 FOREIGN FINANCIAL CONTROL IN CHINA 

the mining products.*^* " All matters of administration, 
exploitation, employees, and finances shall be controlled 
by the Board of Directors of the Peking Syndicate, and 
the Chief of the Shansi Bureau of trade shall cooperate. 
. . . Each line must have one foreign and one Chinese 
manager, the foreigner to control the works, the Chinese 
to attend to all matters between natives and foreigners. 
Accounts will be kept by the foreign system." By the 
agreement for the Construction of a Railway from 
Taokow to Chinghua by the syndicate, the Chinese Gov- 
ernment agreed that the railway for all practical pur- 
poses was to remain under the control of the syndicate 
until the bonds have been secured.*^*^ The amount of the 
loan was L7oo,ooo and was secured by a first mortgage 
^on the railway, its line, rolling stock and earnings. A 
commission of one-fourth of one per cent, on the amount 
of interest coupons paid, and the like commission on all 
bonds drawn for payment was to be paid to the syndicate. 
Finally, according to the additional working agreement 
^was the syndicate entitled to receive from the Imperial 
Chinese Railway Administration 20 per cent, of the sur- 
plus of each year. 

Although these control provisions appear to be very 
favorable to the syndicate, they remain nevertheless in- 
significant, since this railway is very short and of abso- 



5* See Rockhill, op. cit., No. 40. 

^^ See Kent, op. cit, Appendix C, Nos. i and 2. 



GREAT BRITAIN 57 

lutely secondary importance when compared with the 
valuable mining concessions. The " control " provisions 
are in substance* similar to those of the British and Chi- 
nese Corporations' agreements. In order to reduce the 
above enumerated control provisions to their essence and 
true meaning we can not do any better than use the words 
of Mr. Willard Straight and Mr. Kent. Mr. Straight 
writes in " China's Loan Negotiations " : ®* 

" Control in the at present accepted sense of the word 
was first embodied in the agreement made by the Chinese 
Government in 1898, with the British and Chinese Cor- 
poration, for a loan to the Imperial Railways of North 
China. 

" Under this agreement, and in several others concluded 
at about this time, the lenders, besides securing a first 
mortgage on the railway whose construction they 
financed, were entitled to a share in the profits of the line. 

" For this reason and also because of the inexperience 
of the Chinese in railway matters, the bankers required 
assurances that the loaned funds should be so expended 
that the mortgaged property would constitute a suf- 
ficient security. 

" They furthermore obtained a certain share in the 
management of these lines in order that there should be 
secured therefrom an adequate return (to a certain per- 
centage of which the banks were entitled), and to prevent 

'^^ See Straight, op. cit., page 131. 



S8 FOREIGN FINANCIAL CONTROL IN CHINA 

the administrative inefficiency and fraud which they 
feared if the operation of these railways were placed en- 
tirely in Chinese hands." 

Mr. Kent's summary of the aspects of the contracts 
is similar : ^^ 

" Firstly, the syndicate is given the right to construct 
the line, and in return for its trouble in this connection it 
is in most cases allowed a sum equivalent to 5 per cent, 
on the total cost. It is this right which presumably gives 
rise to the idea of concession. 

" Secondly, on completion of the line it is placed in 
some cases under a theoretically joint Chinese and for- 
eign control, in which in practice the foreign element pre- 
dominates. In other cases the Chinese have merely a 
consultative voice. 

" Thirdly and lastly, at this stage, or rather from the 
time of the issue of the loan, the syndicate become trus- 
tees for the bondholders, and it is easy to see that, in the 
nature of things, the loan being secured by a first mort- 
gage upon the railway, the position of the syndicate for 
all practical purposes must be that of mortgagees in pos- 
session.'* 

Such are the underlying principles of the agreements 
which confer these rights, which for want of a more 
precise term we call, and shall continue to call, conces- 
sions. The details, of course, vary. 

»T See Kent, op. cit., page 95. 



GREAT BRITAIN 59 

According to Mr. Kent the agreements are in the na- 
ture of underwriting contracts, and the indirect profits 
to the syndicate accruing therefrom are very hand- 
some.*® " The contracting syndicate undertakes to pro- 
vide 90 per cent., for example, of a loan of so many 
millions of pounds or dollars, as the case may be, re- 
payable at a certain specified time and bearing interest 
at the rate of 5 per cent, per annum ; it takes its chance of 
being able to float the loan upon the public at a higher 
percentage of its nominal value. What has happened in 
most cases is that on every Lioo bond, for example, 
issued by the Chinese Government the latter received 
L90, while the syndicate have succeeded in getting them 
taken up at L97 or thereabouts, thus securing a respect- 
able margin on the transaction." 

Another source of profit to the banks as well as to 
English industries, was the provisions which made the 
syndicate the purchasing agents of materials and rolling 
stock. Outside of the fact that the corporation was to 
receive on the average 5 per cent, commission of the 
entire cost of all materials purchased, the materials were 
naturally almost exclusively purchased in England.*® 
Although all materials were nominally to be purchased 
in the open market, the usual clause that " at equal rates ' 
and qualities, goods of British manufacture shall be given 

5* See Kent, op. cit, page 94. 
" Sec also Chapter VIII. 



6o FOREIGN FINANCIAL CONTROL IN CHINA 

preference over other goods of foreign origin " provided 
an opportunity for almost exclusive purchase in England. 
Thus writes the Far Eastern Review, referring to the 
open market provision : " We find, however, that, not- 
withstanding the specific agreement the purchases were 
made exclusively in London without reference to the 
lowest price or open tenders." ®^ 

On the strength of the foregoing analysis we now draw 
the conclusion that British control in China consists of 
^nothing more than safeguards for the protection of 
the bondholders and bankers, guaranteeing proper loan 
fund expenditure and adequate return. British control 
in China, exercised exclusively by private corporations, is 
therefore essentially financial and non-political. 

Its non-political character may be further illustrated 
* by the fact that the syndicate, in spite of its monopolistic 
rights, admitted non-British interests to participation in 
its privileges within the British sphere. 

On February i, 1899, the British and Chinese Ck)rpor- 
ation and the American China Development Company, 
the latter having no exclusive government support, made 
an agreement that each party should offer to the other a 
participation of one-half of its own interest in any busi- 
ness hereafter obtained by it in China, excluding, how- 
ever, a number of agreements which had been entered 

«oSee "Far Eastern Review," Vol. VIII, page 82. See also 
Straight, op. cit., page 123. 



GREAT BRITAIN 6l 

into previously by either party.®^ This agreement, how-, 
ever, was terminated later. 

In 1905 the British and Chinese Corporation, the Pe- 
king Syndicate and French bankers joined for generaU 
participation as to railway construction in the Yangtsze 
Valley, and especially in the regions north of the Yang- 
tsze Valley,®^ namely, for the construction of the Pukow- 
Sinyang and Sinyang-Chengtu or Hankow^hengtu rail- 
ways. 

One of the objectives of the British and Chinese Cor- 
poration had been a railway from Pukow to Sinyang and , 
its eventual extension to Chengtu. The Peking Syndi- 
cate, however, had planned a line which would seriously 
compete with the British and Chinese Corporations' line. 
*' This and other considerations led to an amalgamation 
of the two companies for all future railroad development 
north of the Yangtsze," says Kent.®^ The combination 
was henceforth known as the Chinese Central Railways,* 
Ltd. At the same time a group of French and Belgian 
capitalists, headed by the Banque de Tlndo-Chine, were * 
also interested in securing the concession for a line from 
the Hankow-Sinyang district westwards to Chengtu.®^ 
To avoid competition the British combination entered*' 

•1 See Rockhill, op. cit., No. 49. 

*2 See Laboulaye, " Les Chemins de f er en Chine/' pages 182 and 
206. 
•3 See Kent, op. cit., page 128. 
«* See " Far Eastern Review," Vol. X, page 298. 



62 FOREIGN FINANCIAL CONTROL IN CHINA 

into negotiations with the French capitalists for joint 
coristruction of the lines in question, absorbing their 
interests into the Chinese Central Railways, Ltd. The 
Pukow-Sinyang line was, however, eventually constructed 
as a purely British line.*^ 

As early as 1895 the Hongkong and Shanghai Bank- 
ing Corporation had entered into an agreement with 
the Deutsch Asiatische Bank to share all Chinese Govern- 
ment business thereafter obtained by either party. The 
resulting financial transactions, done in common, and 
especially the Tientsin-Pukow agreement with its import- 
ant control provisions, shall be analyzed in the Chapter on 
" International Action." Their agreement as to mutual 

^participation was terminated in 1898, with the exception 
of the Tientsin-Chinkiang-Pukow Railway, and the bank- 
ers agreed to respect their mutual spheres.** As a con- 
sequence the Germans abstained for several years from 

^demanding participation in the railway enterprises within 
the Yangtsze sphere. But, presumably owing to the 
political and economic changes after the conclusion of the 

* Russo-Japanese War, and owing to the increasing com- 
petition for a share in the benefits of Young China's 
promised development of trade and industries, the Ger- 
man bank around 1908 changed its policy. It henceforth 
demanded rights of participation under the terms of the 
former agreement and intended to compete for railway 

•^ See below, page ^ •• See above, page 46. 

^7 



GREAT BRITAIN 63 

and other Chinese Government loans, in the Yangtsze 
Valley and elsewhere, unless admitted on terms of equal- 
ity. The British financiers accjuiesced in the German 
demand for participation, and the Germans associated 
with the British and French interests in the syndicate 
known as the Chinese Central Railways, Ltd. The activ- 
ities of this " Tripartite " and, after the admission of the 
United States, the " Four Nations " group from now on 
are cosmopolitan in character and consequently shall be 
dealt with in detail in the Chapter on " International 
Action." 

The admission of German participation with the An- 
glo-French Combination in the Yangtsze railway loans 
and in an area which had been recognized as reserved for 
the British, was an event sufficiently important to provoke 
criticism, such for instance as has been forthcoming from 
Mr. J. O. P. Bland in his excellent book on " Recent 
Events and Present Policies in China." ^'^ His criticism 
may be summarized as follows: That British and 
French financiers worked in common is easily explained 
by the excellent relation then and thereafter existing be- 
tween the two countries; but that German and British 
financial interests should continue to cooperate in the 
Far East, while there was friction between the two coun- 
tries at home, was a matter of much surprise to the 
English world, and the British bank having for years 

•T Sec Bland, op. cit., pages 273 ff. 



64 FOREIGN FINANCIAL CONTROL IN CHINA 

enjoyed a monopoly of British Government support and 
become identified with British enterprise of far-reaching 
political importance, could not openly endorse the Ger- 
man claims without arousing opposition in England. 
The correspondent of The Times at Peking, expressed 
the general wonder that " the British Government should 
delegate to one British bank, which is naturally com- 
pelled to consider financial rather than national interests, 
the right to assist the extension of German influence." ®® 
It was demanded that the Government should organize 
and direct the use of British capital as a weapon of 
offense and defense and that it should follow the example 
of other countries and notably that of Germany where 
the financiers are obliged to conform strictly to the polit- 
ical directions of their Governments who are profiting 
by the laisser-aller methods of Great Britain. 

The reasons that the Foreign Office showed no appre- 
ciation of the fact that other nations were successfully 
developing their rights of railway construction to the sup- 
posed detriment of Great Britain, and that no strong 
national policy could be expected, is on the one hand 
evidence of the absence of an effective force of public 
opinion. For with the exception of very rare cases Eng- 
land's policy follows and does not lead public opinion. 
This is illustrated in a manifesto issued by the China 
League in February, 1901, wherein the following passage 

•8 London Times, May 9, 1909. 



GREAT BRITAIN 65 

occurs : " At a time when the future of China hangs 
in the balance, when the maintenance of our position 
and trade in that Empire (that is to say, the welfare of 
Great Britain in years to come) depends on the imme- 
diate policy of her majesty's Government and the action 
of the British representative in the Concert of the Powers 
at Peking: at such a time, the Imperial Parliament, its 
attention apparently concentrated on personal explana- 
tions of unimportant matters, enunciates no policy on 
the Far Eastern question. Statesmen on both sides of 
the House, and publicists of all shades of opinion, remain 
silent in regard to the crises, offering no solution cal- 
culated to protect British interests. A debate on the 
China question attracts less attention than a minor ques- 
tion of parochial Grovernment." ®® 

Furthermore, considering the situation as a whole and 
having reference to the particular history of British- 
Chinese relations and the various experiences of the Gov- 
ernment, we are faced with the fact that the Government 
finally was wearied by the futilities of the many negotia- 
tions and the ever increasing complexities of the sit- 
uation. Great Britain's foreign policy in China, con- 
sistent with the traditions of British statesmanship, con- 
tinued to be guided by the old traditional ** laisser-faire " 
and free trade principles, which had made the Empire 
great. Therefore it left the control of Britain's financial 

«• See Bland, op. cit., page 270. 



66 FOREIGN FINANCIAL CONTROL IN CHINA 

interests to the parties directly interested. And there is 
little wonder that the business of the British Syndicate, 

'being unhampered by governmental interference or re- 
striction, speedily assumed cosmopolitan character. For 
in its cosmopolitan tendencies, which are towards elim- 

*ination of competition and towards consolidation, British 
finance is quite in harmony with leading British economic 
thought. 

According to Mr. Hobson and other prominent econo- 
mists the conception of nations as hostile competitors in 
world finance is economically tmsound.'^® International 
finance is peace-loving, since the cooperation of the finan- 
ciers of the various countries in business enterprises in 
all parts of the world is binding up the prosperity oi 
each individual country intimately with the welfare of 
all other countries. Says Hobson : " Modem finance 
is the great sympathetic system in an economic organism 
in which political divisions are of constantly diminishing 
importance." ''^ 

That the policy of non-interference — barren of deep 
laid plans such as characterize the policies of other 
Powers in China, and at times criticized as suicidal to 
British prestige and British economic interests — has by 
no means handicapped the tremendous growth of British 

70 See J. A. Hobson, "Work and Wealth," Chapter XVII; see 
also Same, "An Economic Interpretation of Investment," passim, 
and J. H. Withers, " International Finance," pages 93 ff. 

7* See Hobson, " Investment," page 122. 



GREAT BRITAIN 67 

railway interests in China, is amply illustrated by the 
various concessions contracted by British financiers in 
later years, especially in 19 14. An authoritative text 
of the agreements was not available to the author, with 
the exception of one. The control provisions seem to 
be of a milder form similar to the so-called Tientsin- 
Pukow terms, which will be a subject of investigation in 
Chapter VIII. Since the fate of these railways is un- 
certain owing to the war, we shall only give a brief 
enumeration of the more important ones. 

The final loan agreement of the Pukow-Sinyang Rail- 
way was concluded on Nov. 14, 19 13, between the Chi- * 
nese Government and the Chinese Central Railways, 
Ltd.''* By Article 9, the Loan was secured by a mort- 
gage on the railway, all lands, materials, rolling stock, 
buildings, etc., and the revenues. And according to Arti- 
cle 16, the construction and control of the railway shall 
be vested in the Chinese Government with a Chinese 
Director General and a British Engineer in Chief. 

In July, 1 91 4, an agreement for the construction of the 
Nanking-Pinghsiang Railway was entered into between 
the Chinese Government and the British and Chinese 
Corporation.'^^ 

And finally, also in July, 19 14, a final agreement was ^ 
signed between the Ministry of Posts and Communica- 

^« See " Far Eastern Review," Vol. X, page 307. 
^« See " Far Eastern Review," Vol. XI, page 49. 



68 FOREIGN FINANCIAL CONTROL IN CHINA 

tions and Messrs. Pauling & Co., Ltd., of London for 
the construction of a railway starting from a point on 
the Yangtsze River opposite the city and port of Shasi|) ^ 
in the Province of Hupeh, through Lichow, Changteh, 
Shenchow, Yuanchow, Chenyuan, Kweiyang, Anshunfu 
to Shingyifu, in the southwestern corner of the Province 
of Kweichow, with a branch from Changteh to the city 
of Changsha, the capital of the Province of Hunan.'^^ 
The loan is for L 10,000,000 for 40 years at five per cent, 
interest. The railroad is to be built by contract, a firm 
of British consulting engineers acting with the Chinese 
managing director in drawing plans and supervising the 
work. The admission of Messrs. Pauling & Co. was 
•due to a modification of British policy following the fail- 
ure of the International Loan Negotiations. ''^ 

Succeeding chapters will incidentally, by means of 
comparison, further emphasize the preponderance of 
British finance in China, based as it is upon the wealth 
and the extended and old established trade relations 
of Great Britain, both of which — at least previous to 
the Great War — were superior to those of any other 
country. 

7* See *' Far Eastern Review," Vol. xi, page 52. 
7« See Chapter VIII. 



CHAPTER III 



RUSSIA 



Russia's policy in the Far East shows a marked con- 
trast to that of Great Britain. The causes of this 
contrast lie in the differences in national character and 
governmental system of each.^ The administration of 
the Russian Empire under autocratic rule, resting nom- 
inally in the hands of the Tsar, was actually entrusted to 
a body of ministers and officers who were practically 
untrammeled in their action, and their freedom was 
restrained neither by the criticism of a free press, the 
influence of public opinion, nor the liability of being de- 
prived of office by a parliamentary vote of censure. It 
follows that the Russian diplomatist was in a position to 
attain any object he may have had in view. 
. Russia has always contained statesmen who have 
guided her destinies along imperial lines ; statesmen who 
have seen beyond many generations and whose grand and 
far-reaching policy, in spite of grievous errors in local 
administration, has made the Russian Empire what it 
was before the war. But their system was entirely 
opportunist, the method often without scruple. In her 

1 The first point will be dealt with at the end of this chapter. 

69 



70 FOREIGN FINANCIAL CONTROL IN CHINA 

descent on Asiatic waters Russia has been impelled 
neither by the need of extended territory nor by the 
desire for commercial relations with other countries. 
Indeed Russia's trade with China was and is insignifi- 

^cant and consists mainly of importing articles of Chinese 
manufacture into Russia, notably tea, silks and drugs. 
Her ambitions were political and her absorptions have 
Deen prompted partly by a craving for a seaboard, partly 
by a political instinct of expansion, and partly by the 
personal ambitions of a few statesmen. 

It may be said that the designs of Russia in regard to 

^China first began to take serious shape in 1854, when the 
celebrated Count Muravieflf seized the Amur River. Al- 
though this measure of aggression may have long been 

"'in the minds of Russian statesmen, it was precipitated 
by reason of the blockade of the Black Sea during the 
Crimean War. The severance of communication by sea 
compelled Russia to secure control over the river as a 
means of conveying supplies to her distant possessions in 

1 

the East. It was Muravieff himself who had first 
aroused public interest in the Amur, when he defended 
Kamchatka via this river. To quote Vladimir : " The 
unexpected news of the gallant defense of Petropav- 
lofsk, a detached little-known episode of the Crimean 
War, an event of great importance in the Far East, 
aroused the greatest enthusiasm." ^ At the same time, 

* See Vladimir, " Russia on the Pacific," page 225. 



RUSSIA 71 

as Douglas points out : " The Anglo-French expedition 
of 1857-60 enabled Russia to pose as the friend of 

China.*' ^ The result was the Treaty of Aigun of May 

• 

16, 1858, strengthened by another treaty of i860.* 
These treaties gave Russia the whole coast of Man- 
churia to the Korean frontier, the so-called Maritime 
Provinces, and provided for trade free of all duties and 
restrictions between Russia on the land frontiers. 
" This quiet transfer," says Vladimir, " was due more 
to the internal troubles and foreign wars of China, than 
to the shadowy nature of the sovereignty in the disputed 
territory.*'^ The new territory thus acquired enabled 
Russia to found her great eastern seaport, Vladivostok. 
By the same treaty the right of Russia to retain an envoy 
at Peking was conceded, and from that time on to the* 
present Russia has retained her most able diplomatists 
at the Celestial capital for the purpose of developing 
her aims and extending her interests in China. 

The extension of these interests is largely connected 
with the building of the Siberian Railway. It had be- 
come indispensably necessary, if the acquisition of the 
new Far Eastern territory as well as the whole of Siberia 
was to bear any fruit for Russia, that cheap and rapid 
means of communication should be established between 
European Russia and the head waters of the Amur. 

* See Douglas, " Europe and The Far East/' page 190. 

* See Mayers, op. cit, page 105. 
' See Vladimir, op. cit, page 317. 






72 FOREIGN FINANCIAL CONTROL IN CHINA 

The consequence was the construction of the Siberian 
Railway which Vladimir calls the " economic concomi- 
tant of Russian expansion on the Pacific." Although 
originally, as far as the motives which inspired the 

"scheme of the Siberian Railway were concerned, these 
may be regarded as primarily economical, there can be 
no doubt that the strategical advantage began to loom 
up in large proportions, as soon as the construction of 
the line through to the Pacific coast was actually under- 
taken in 1 89 1. While up to this year the preoccupation 

ipf Russia in the Balkans and in Central Asia had pre- 
vented the advance of Russia south of the Amur and 
west of the Ussuri, she now began to give the problems of 
the Far East her full and undivided attention. Russia 

%began to realize something of the immense possibilities 
of China, and last not least she recognized that her ambi- 
tion was only partially achieved as long as she had not 
found a harbor entirely free from ice, Vladivostok being 
icebound for several months in each year. The outcome 

^of such considerations was found in an extension of the 
Siberian Railway through Eastern Mongolia and Man- 
churia to the coast of the Yellow Sea. To this end 
careful surveys were made by Russian experts in Man- 
churia, and the possibilities of the country studied at the 
instance of the Russian Government.® 
> Meanwhile, Russian diplomacy was exceedingly active 

• See Kent, op. cit., pages 40 ff. 



RUSSIA 73 

at Peking in 1890 and 1891, and it was directed towards 
delaying the construction by China of the Manchurian 
railways projected by Li Hung Chang, in order that con- 
cessions for railways in this region should be granted 
to Russia. What relations between Li Hung Chang 
and Russia existed at this time, may perhaps never be 
known. He may or may not have intended from the 
beginning to concede these lines to Russia for a consid- 
eration. 

It was so much easier for the Russians to reach their 
ends as Li Hung Chang, that astute Chinese statesman, ^ 
though alive to Russian antagonism, shared Russia's 
suspicion of the Japanese and set to work to secure Rus- 
sia's prospective help in his plans to thwart Japan. The 
trouble centering around Korea was boding ill for the 
peace of the Far East.'' To Russia, China always had 
looked as the mighty neighbor, for Russia in her con- 
tact with the Chinese never had failed to impress the 
celestials with a sense of her power. Li Hung Chang 
acted towards Russia in a friendly spirit and treated her 
as a Power which, being geographically and historically 
quite differently situated to the rest of Europe, was 
worthy of different treatment. 

The result of the Korean War, so disastrous to China, 
tightened the bonds of sympathy between Russia and 
China. The alarm experienced in Peking at the spec- 

7 Sec Douglas, op. cit., page 304. 



74 FOREIGN FINANCIAL CONTROL IN CHINA 

tacle of Japanese troops overrunning Korea and the 
Liaotung peninsula was shared in St. Petersburg. Japan, 
as will be shown later, had disclosed her hand, and in 
doing so had stimulated Russian diplomacy to the exer- 
cise of the greatest ingenuity in order to deprive her of 
the substantial fruits of her victory. It was inevitable 
that Russia should rely on diplomatic action, for military 
Vneasures were not at that time practicable. The Sibe- 
rian Railway was not completed, and it would have been 
impossible for her to throw into Manchuria a force 
sufficient to effect the seizure of the Liaotung peninsula 
from Japan. She therefore used the Yellow Peril argu- 
ment with such effect that Germany and France joined 
her in insisting upon the withdrawal of Japan from Port 
Arthur and from Korea.® Japan had to accept the in- 
evitable, and to withdraw, for she could not have with- 
stood a naval attack upon her shores by three allied 
powers. 

It is of great significance that Li Hung Chang had 
accepted the Japanese conditions without demur. He 
.had apparently previously come to an understanding with 
the Russian representative at Peking, by which the in- 
tervention of the Tsar was promised to prevent the per- 
manent occupation of the Chinese territory by Japan, 
and he knew that the most important clause in the peace- 
treaty would not be allowed to be carried out. Natu- 

• See Le Roy Beaulicu, " The Awakening of the East," page 247. 



RUSSIA 75 

rally his gratitude towards Russia was great, and his 
obligations soon resulted in a large increase of Russian 
influence at Peking.® During the latter part of 1895, 
and the entire year of 1896, Russian diplomacy was very* 
busy in impressing upon the Chinese the fact that it was 
Russia alone who had saved her from the fate of losing 
parts of Manchuria, that closer relations with Russia 
would ensure China's safety, and that a compensation 
should be given to Russia in some form. 

The visit of Li Hung Chang to St. Petersburg inj£^/^^^ 
paved the way for the striking events that were to follow 
in Manchuria.*® Li Hung Chang was sent as Plenipo- 
tentiary Extraordinary to be present at the coronation of 
the Tsar in Moscow. During his visit to Russia there 
were rumors of the confirmation by him of a secret con- 
vention which had been entered into between China and 
Russia in 1895, ^^ so-called Cassini Convention. Count 
Cassini, the Russian minister to China, was said to have 1 
had a series of interviews with the viceroy of Pechili, 
with whom he negotiated a secret treaty, which was 
subsequently ratified by Prince Lobanow, the Russian 
minister of foreign affairs. The alleged text of this 
agreement was published in the North China Daily 

» The mysteries of Li Hung Chang's relations to Russia have been 
expounded in almost every important book on the Far East. Reli- 
able official data are not available and the author has merely pre- 
sented a brief summary of the situation. 

1® See Kent, op. cit., pages 46 ff. 



76 FOREIGN FINANCIAL CONTROL IN CHINA 

News,^^ but official denials were at once published. 
Subsequent events, however, have proved that an under- 
standing had been come to between Russia and China, 
which for all practical purposes was in the terms of the 
document published in the Shanghai Journal, " Putting 
the. matter briefly, the arrangement amounted to an 

* exchange of guarantees, Russia undertaking to support 
China against foreign aggression in return for certain 
facilities for the extension of Russian interests and the 
construction of railways in Manchuria." ^^ In the Cas- 
sini Convention we see according to Mr. Putnam Weale 
the three main points of view at work, which Russia 
wanted China to get accustomed to : ^^ " The first was 

^that Russia, being without any convenient bases in the 
Far East, free from ice all the year round, must be 
granted some port or ports, which she could share with 
China. The second point, leading as it were to the third, 

^was, that unless Russia were able to exert her great 
strength as a land Power her friendship with China could 
not take the form of material support in case a fresh 
crisis in the Far East should arise, and Japan attempt 
to repay China for calling in the help of the West. And 

vthe third and concluding point was this: In order to 
bring her myriads of soldiers to the Far East, Russia had 

11 See " North China Herald," October 30th, 1896, pages 739-741. 
A. French text can be found in Cordier, op. cit., Vol. Ill, pages 343 ff. 

12 See Kent, op. cit., page 47. 

18 See Putnam Weale, " The Reshaping of the Far East," page 263. 



RUSSIA ^^ 

already begun, years before the Japanese War, a grand 
trunk railway at great expense to herself; but as the 
railway would have to follow the northern bank of the 
Amur, it would be indefinitely delayed unless a more 
convenient route could be granted by generous and mag- 
nanimous China, who had already bestowed the Pri- 
morsk." 

The Cassini Convention, it was believed, also made^ 
some provisions in regard to the acquisition of Kiaochau 
by Russia, while the Liaotung Peninsula was ear-marked 
in Russia's favor." Russia's propositions seem to have 
appealed to Li Hung Chang, though it is hardly to be 
doubted that he fathomed the true significance of the 
convention. He wanted an alliance; and the defensive 
alliance with Russia was the peg on which he hung the 
railway concession. ** Li Hung Chang, in his communi- 
cations to the Chinese Government, laid all the stress upon 
this guarantee, stating that it was of inestimable worth 
to China, against whom England and Japan were hatch- 
ing plots. He treated it as the price to be paid for the 
railway charter, and all the other grants that were super- 
added to the charter.'' *' 

Shortly after his return to China, Li Hung Chang's 
arrangement with Russia began to bear fruit. The first 
manifestation took the form of the Manchurian Rail- 

^* See Cordier, op. cit, pages 343 ff. 
1* Lawton, op. cit, Vol. II, page 1293. 



78 FOREIGN FINANCIAL CONTROL IN CHINA 

way agreement between the Chinese Government and 
the Russo-'Chinese Bank. This bank was destined to 
play a great role in the succeeding events and its estab- 
lishment marks the beginning of Russian " conquest by 
railroad and bank." The original inscription bearing 
imperial sanction was signed, it is important to note, 
by the " Manager of Affairs of the Committee of the 
Siberian Railway." ^® In virtue of the charter, a joint- 
stock company was founded with a capital, originally 
fixed at six million roubles — increased later. Accord- 
ing to Part II, Article 14: " The object of the Russo- 
Chinese Bank is exclusively to develop relations with the 
East-Asiatic countries." Among the usual banking op- 
erations are : " The collection of duties in the Empire 
of China, and the transactions relating to the State 
Treasury of the respective place, the coinage, with the 
a.uthorization of the Chinese Government, of the coun- 
try's money, the payment of the interest on loans, con- 
cluded by the Chinese Government, the acquisition of 
concessions for the construction of railways within the 
boundaries of China and the establishment of telegraph 
lines."^ 

Though the bank appears to be a private corporation 
under Government protection, its political aspect is quite 
apparent. " In addition to a banking department it has 

^« Sec Rockhill, op. cit., No. 31. Sec also Putnam Weale, ** Man- 
chu and Muscovite/' page 126. 



RUSSIA 79 

a political side, to which the former is said to be sub- 
ordinated/' " 

On Sept. 8, 1896, the Russo-Chinese Bank entered 
into an agreement with the Qiinese Government for the 
construction and management of the Chinese Eastern 
Railway/® The principal provisions, establishing Rus- 
sian control, are as follows : 

In Article i : " China and Russia establish a Com- 
pany to be called the Chinese Eastern Railway Co. to 
construct and manage this Railway. . . . The regula- 
tions of the Company will be in conformity with those 
of Russian Railway Companies. Shares may only be • 
bought by Chinese and Russians." 

In Article 6 : "As regards the land required by the 
Company for constructing, managing, and protecting 
the line and adjacent land, for prociu-ing sand, earth, 
stones and lime, if the land be government land, it will be 
given the Company without payment. . . . All the Com- 
pany's land will be exempted from land tax. As soon 
as the land comes under the management of the Com- 
pany, they may erect thereon any buildings and carry on 
all kinds of work, they may establish a telegraph line 
thereon worked by the Company for the Company's 
use." 

Article 7 : " All materials required by the Company 

17 Sec Kent, op. cit., page 47. 
!• See Rockhill, op. cit, No. 32. 



8o FOREIGN FINANCIAL CONTROL IN CHINA 

for the construction and repair of the line will be exempt 
from taxation." 

In Article 8 : " All Russian troops, naval or military, 
^and munitions of war, moved by the Russian Govern- 
ment by this Railway, must be conveyed by the Company 
directly across the border." 

In Article lo: "As to goods conveyed by this line 

^ from Russia to China or from China to Russia, they 

will pay duty according to the Treaty Tariff, i.e., an 

Import or Export duty as the case may be, but subject 

to a reduction of one-third of the Tariff rate." 

On the strength of this agreement the " Chinese 
Eastern Railway Company " was formed " for the con- 
struction and working of a railway within the confines 
of China from one of the points on the western borders 
of the Provinces of Hei-Lun-Tsian, to one of the points 
on the eastern borders of the Province of Kirin and for 
the connection of this railway with those branches which 
the Imperial Russian Government will construct to the 
Chinese frontier from Trans-Baikalia and the southern 
Ussuri lines.'' ^^ The Company is, furthermore, empow- 
ered, subject to the sanction of the Chinese Grovemment, 
to exploit, in connection with the railway or independ- 
ently of it, coal mines, as also to exploit in China other 
enterprises — mining, industrial, and commercial. The 
t formation of the Company shall be undertaken by the 

1" See Rockhill, op. cit, No. 33. 



RUSSIA 8l 

Russo-Chinesc Bank. With the formation of the Com- 
pany all rights and obligations are transferred to it in"* 
regard to the construction and working of the line ceded 
in virtue of the above named Agreement of the 8th of 
September, 1896. In virtue of this Agreement the Com-4 
pany shall retain possession of the Chinese Eastern Rail- 
way during the course of eighty years from the day of 
the opening of traffic along the whole line. But on the 
expiration of thirty-six years the Chinese Government 
has the right of acquiring the line. The railway is to 
be conducted subservient to the requirements of the Si- 
berian Railway. In the event of a difference of opinion 
arising between the two railways the Chinese Eastern* 
Railway shall submit to the decision of the Russian Min- 
ister of Finances. The Russian letter and parcels post, 
as also the officials accompanying the same, shall be car- 
ried by the Chinese Eastern Railway free of charge. 
The preservation of law and order on the lands assigned 
to the railway and its appurtenances shall be confined 
to police agents appointed by the Company. The capital 
of the Company shall be formed by the issue of shares 
and bonds. The shares shall be fixed at 5,000,000 rubles. 
The remaining portion of the. capital of the Company 
will be formed by the issue of bonds. The nominal 
amount and value of each issue of bonds shall be subject 
to the sanction of the Minister of Finances. The Rus- 
sian Government will guarantee the interest on and 



82 FOREIGN FINANCIAL CONTROL IN CHINA 

amortization of the bonds. For the realization of these 
bonds the Company must have recourse to the Russo- 
Chinese Bank. 

The character of " control " established by the fore- 

I going agreements can easily be ascertained. The fact 
that according to Article i of the last agreement " the 
Director of the Company will be appointed by China," 
and that " his duty will be to supervise the task dele- 
gated to the Company by China, and to ascertain whether 
his obligations are faithfully performed," does not alter 
the fact that the Company is a Russian joint stock 
company, run by Russians, with Russian money, and 
under Russian rules. One of the points, which is em- 
phasized by Kent, is that " no person except of Chinese 
or Russian nationality could become a shareholder, which 
meant, of course, a purely Russian company, for . . . 
the Chinese had not reached that stage of education when 
the idea of joint-stock enterprise either inspires con- 
fidence or appears attractive." ^^ And Kent continues : 
" In this company, which was to be known and ulti- 
mately came into existence as the Chinese Eastern Rail- 
way Company, the sole control of the line was vested, 
and also rights, in connection with the railway, and 
independently of it, of mineral, industrial, and commer- 
cial exploitation/' 

But in addition to the fact that this railway company 

20 See Kent, op. cit., page 48. 



RUSSIA 83 

is of Russian ownership, we have to bear in mind, that 
the control over the owners is exercised by the Russo- 
Chinese Bank, a state-controlled institution. To justify 
this contention it would not even be necessary to ascer- 
tain who the owners of the shares are. It appears to 
us, on the strength of all *' control " provisions, as self-^' 
evident that the road is state-controlled and that Rus- 
sian control in China is of a political nature. To dis- 
perse any doubt about the nature of Russian control we 
shall support our contention by the following considera- 
tions: Comparing the Russian control provisions with 
those to be found in the British agreements we find that 
no protection is made for the shareholders, who are the 
nominal owners. There is no mortgage on the railway, 
because there is no loan made to the Chinese Government. 
Only the bondholders are protected, namely, by a Russian* 
Government gfuarantee! The management rests perma- 
nently with the company, though nominally under Chi- 
nese supervision. In fact all control provisions char-^ 
acteristic of English agreements are absent. This fact, 
however, would in itself not be sufficient to prove the 
political character of Russia's control. Nominally, Rus-^ 
sian control remains financial, since the contracts con- 
taining the respective provisions are on the Russian side 
concluded by private citizens and since the object of the 
contracts is a financial proposition, namely the building 
of a railroad. But what we are interested in, is the 



84 FOREIGN FINANCIAL CONTROL IN CHINA 

spirit of the control provisions, and not their word- 
ing. 

The poHtical and military character of the railway is 

%nianifested in the railroad police, or so-called railroad 
guards. These were Russian soldiers and they formed 
a small army. These guards and the so-called railroad 
** zones," i.e., lands granted to the company upon which 
settlements were established under Russian administra- 
tions, will be an object of our investigation at a later occa- 
sion. 

As a further support of our contention we shall quote 
Kent once more. Referring to the two points between 
which the railroad was to run, Kent remarks : " In 
other words, permission was given to continue the Trans- 
Siberian line across Manchuria to Vladivostok instead 
of following the more circuitous route along the Amur, 
which presented almost insurmountable difficulties to 
railroad construction." ^^ The new railway through 

jChinese territory is, indeed, nothing else than part and 
parcel of the Trans-Siberian Railroad, which is owned 
and controlled by the Russian Grovernment. Its pur- 

•pose is mainly strategical. Such is at least the opinion 
of the British representative in China, Sir C. MacDon- 
ald, who wrote in 1898: "The Manchurian Railway 
Concession dates from 1896. As is well known, it was 
obtained as recompense for help given in securing the 

21 See Kent, op. cit., page 48. 



RUSSIA 85 

retrocession of Liaotung. . . . The concession is purely 
strategical." ** 

The agreement enabled Russia to dispense with the 
originally projected line along the north bank of the 
Amur, gave the Russians the permission of continuing 
the Trans-Siberian line across Manchuria to Vladivos-^ 
tok, and also prepared the way for further extensions 
southwards. In other words, the Manchurian Railway 
enabled Russia to dominate the whole of North Man- 
churia. 

The construction of the Chinese Eastern Railway was 
begun in 1897. Meanwhile diplomacy appears to have 
been active in preparing for the southern extension of 
the line towards the Gulf of Chili in order to secure a 
post which should be free from the disadvantage which 
attached to Vladivostok of being annually icebound for 
several months. Events again facilitated and hastened 
Russian movements. Germany had compelled the Chi- 
nese Grovemment to give a lease of the region around* 
Kiaochau Bay for ninety-nine years. It has been sug- 
gested that China was under promise to grant Russia a 
concession in the Kiaochau region,^^ and that Russia 
embraced the opportunity of the grant to Germany to 
insist upon a lease of the Liaotung peninsula, including 
the harbor and fortress of Port Arthur, for twenty-five 

22 See " China," No, i, 1899, Vol. CIX, No. 459, Enclosure 2. 

23 See below, page 86. 



86 FOREIGN FINANCIAL CONTROL IN CHINA 

years, and upon the right to construct a railway to con- 
nect Port Arthur with the Chinese Eastern Railway. 
The lease of the Liaotung peninsula was granted on the 
27th of March, 1898, including the right to build a rail- 
way connecting Port Arthur with Harbin, and another 
connecting Talienwan (later Dalny and now cklled 
Dairen by the Japanese) with Newchwang.^ The eighth 
clause provided for a branch of the railway southward: 
"The Chinese Government agree that the principle of 
the permission given in the twenty-second year of Kuang 
Hsu (1896) to the Manchurian Railway Company for 
the construction of a railway shall now, from the date of 
signature, be extended to the construction of a branch 
line from a certain station on the aforesaid main line 
to Talienwan, or, if necessity requires, the same prin- 
ciple shall be extended to the construction of a branch 
line from the main line to a convenient point on the sea- 
coast in the Liaotung Peninsula, between Yingtzu ( Nuo- 
chwang) and the Yalu River. The provisions of the 
agreement of the 8th of September, 1896, between the 
Chinese Government and the Russo-Chinese Bank shall 
be strictly observed with regard to the branch line above 
mentioned. The direction of the line and the places 
it is to pass shall be arranged by Hsu-Ta-jen and the 
Manchurian Railway Company." The article ends with 
the important proviso that "this railway concession is 

2* Sec Rockhill, op. cit., Nos. 9 and 10. 



RUSSIA 87 

never to be used as a pretext for encroachment on Chi- 
nese territory, nor to be allowed to interfere with Chinese 
authority, or interests." Article III of the Additional 
Agreement, signed at St. Petersburg on the 7th of May,^ 
1898, provides that the terminus of the line should be 
at Port Arthur and Talienwan. It is further agreed 
in common that railway privileges in districts traversed 
by this branch line shall not be given to the subjects 
of other Powers. 

" Russia having gained her points, the Russification 
of the country proceeded fast. Port Arthur was forti- 
fied, a modem town built at Dalny, and railway con- 
struction pushed on. The line was now divided into 
three sections : the Western, from the Siberian frontier to 
Harbin; the Eastern, from Harbin to Vladivostok; and 
the Southern, consisting of the branch from Harbin to 
Port Arthur. The paramount importance of the last- 
named, in Russian eyes, was soon made manifest, for 
though the eastern and western section received merely 
ordinary attention, the Port Arthur branch was pushed 
on with the utmost dispatch. . . . The gauge adopted 
for the line was five feet, the Russian standard, which 
was especially stipulated for in the agreement in order 
that it might be uniform with the Trans-Siberian Road. 
So rapidly was the work pushed on, that by the time of* 
the Boxer outbreak the line was almost through." ^ 

^* Sec Kent, op. cit., page 50. 



88 FOREIGN FINANCIAL CONTROL IN CHINA 

•The railway could be opened to traffic in 1901. " Con- 
trol ** over the road is absolutely identical to that over 

*the North Manchurian line. For the railway is merely 
a branch line of the Chinese Eastern Railway, and is thus 
subject to all the agreements referring to the latter, as 
explicitly stipulated in Article 8 of the convention of 
March 27, 1898. The whole Manchurian Railway 
places Russia in the possession of a direct route to 
Peking and at once gives her a predominance in North- 
em China, which places other powers at a marked dis- 
advantage. 

It was especially the British colony in China that was 
worried about Russia's activity in the north. The China 
Association wrote on April 14, 1898, to Lord Salisbury: 
** The Association feels no confidence that the door of 
Manchuria will be left open by the Great Power which 
has obtained possession of lock, bolt, and bar. An ice- 
free port was a necessary concession to its commercial 
needs. The fact that that port has taken the form of 
|i fortress, which can be rendered practically impreg- 
nable, violently changes the situation." ^® 

But it is also important to notice the Russian point of 
view. In an Official Communication of the Russian Of- 
ficial Messenger of March, 1898, we read in reference 
to the lease of Port Arthur and the Russian railway 
rights in Manchuria : " This Agreement is a direct and 

2» See " China," No. i, 1899, Vol. CIX, No. 25. 



RUSSIA 89 

natural outcome of the friendly relations between great 
neighboring Empires, all of whose endeavors should be 
directed towards the preservation of tranquillity along 
the vast extent of their neighboring possessions for the 
common benefit of the people of both of them. . . . 
Securing the inviolability of the sovereign rights of 
Qiina, and satisfying the daily requirements of Russia 
in her capacity of a great and neighboring naval Power, 
this Agreement can in no way injure the interests of any 
other Power; on the contrary, it gives to all nations of 
the world the possibility in the near future of entering 
into communication with this hitherto closed-up cotmtry 
on the coast of the Yellow Sea/' *^ 

English objections to Russia's Manchurian enterprises 
were severely criticized by the Russian Press, to judge 
from extracts given in the British Blue Books.*® The 
Novosti says for instance that " Russia's recent action 
in the Far East meets with the sympathy of all countries 
excepting England. This shows how thoroughly the 
majority of foreign Powers believes in the sincerity of 
Russia's desire for peace. England, who always op- 
posed Russia's lawful aspirations, would obstruct her ^ 
now were she not happily isolated. ... At present Eng- 
land is helpless before Russia, because the latter is sup- 
ported by France and Germany. There is no formal 

27 See " China," No. i, 1899, Vol. CIX, No. i, 

28 See " China," No. i, 1899, Vol. OX, No. 14, Enclosures. 



go FOREIGN FINANCIAL CONTROL IN CHINA 

agreement between these three Powers, but there is a 
complete solidarity between them." 

England's isolation mentioned here, led eventually to 
ihe conclusion of the Anglo-Japanese alliance. But 
meantime the Russian and English Governments had 
long discussions in reference to railway enterprises in 
Manchuria.^® The British and Chinese Corporation had 
entered into a preliminary agreement with the Chinese 
Government on the 7th of June, 1898, for a sterling loan 
of 16,000,000 taels " for the construction of a rail- 
way-line from Chunghowsou to Hsinmintung, and a 
branch line to Ying-tzu, and for the redemption of ex- 
isting loans to the Tientsin-Shanhaikwan and Tientsin- 
Lukouchiao lines. The security for the loan shall be the 
permanent way, rolling-stock, and entire property. . . . 
In the event of default or arrears in payment of interest 
or repayments of principal, the said railway lines . . . 
shall be handed over to representatives deputed by the 
Syndicate, to manage them on their behalf, until prin- 
cipal and interest of the loan are redeemed in full, when 
the management will revert to the Railway. Administra- 
tion/' ^^ Whereupon the Russian Representative in 
^ China protested against the arrangemient, and especially 
against the provision of British control in case of de- 
fault. A long series of negotiations followed, until 

28 A detailed account of these is given by Kent, op. cit, pages 51 ff. 
8® See Rockhill, op, cit., No. 42. 



RUSSIA 91 

finally a compromise was reached, which is expressed in 
Article 4 of the final agreement of Oct. 10, 1898.^^ 
" This arrangement, which differs from other contracts 
in that the Administrator-General retains control of the 
railway lines so long as the principal and interest of this 
loan are regularly paid, has been agreed to in consequence 
of the friendly relations which have long existed between 
the Contracting Parties." Sic! 

The ultimate outcome of the Russo-British negotia- 
tions was the official recognition of the respective 
" spheres of interest " as quoted in Chapter II. A sup- 
plementary note recorded the understanding arrived at 
in respect to the Shanhaikuan Newchwang section of the 
Imperial Railways of North China. 

While Russia thus excluded England from railway^ 
participation in her sphere, England was not able to 
exclude Russia entirely from hers. It had been Russia's 
great desire to secure control of a railway from the north 
which would join with a line from Indo-China, and to 
establish a through trunk route bisecting China and under 
control of Russia and her ally France. But bound by 
the agreement with England, she could only accomplish 
her ends through the medium of a third party. This 
Russia apparently did by entrusting her interests to oth- 
ers. She retired into the background, and confided the • 

«i The correspondence between the British and Russian Govern- 
ments with regard to Railway interests in Manchuria are contained 
in " China," No. 2, 1899, Vol. CIX. 



92 FOREIGN FINANCIAL CONTROL IN CHINA 

active work of advancing her interests to her allies and 
financial agents, France and Belgium. 
^ In 1897 a Belgian syndicate obtained a concession 
for a line from Peking to Hankow. The hand of Rus- 
sia in the negotiations was clearly seen. In Article 
18 ^* it was stipulated that the Russo-Chinese Bank would 
be the agent for the bonds, and Article 20 provided that 
the Russo-Chinese Bank should be the bank of deposit 
and the medium for monthly payments. The British 
Government soon realized the significance of the Belgian 
venture and did not entertain any illusions as to the 
real character of the Belgian concessions. At the time 
the agreement was ready to be signed, Sir Claude Mac- 
Donald raised the strongest objection.^^ His principal 
^criticism of the contract was that there was no security 
against the railway's transfer to a bank or S)mdicate 
of another nationality (namely Russian), that there is 
withdrawn from Chinese control all concern with the con- 
struction of the line, and all power of interference with 
the selection of the employees and the fixing of the rates 
and that the Russian Minister, together with the French 
and Belgian, was to be the judge in certain disputes; 
while his principal objection was directed against any 
participation of the Russo-Chinese Bank.^* Any British 
objection, however, proved to be without avail, for China 

'2 See Rockhill, op. cit, No. 34. 

88 See CheiDter 11 

" See " China," No. i, 1899, Vol. CIX, No. 347. 



RUSSIA 93 

seemed to have been determined and Russian pressure 
seemed to have bieen stronger than British demonstra- 
tions. 

The arrangement was embodied in two documents, a 
loan contract and an operating contract.^^ The latter 
confers wi^e powers of management upon the syndicate, 
and gives them complete financial control of the line. 
Article I provides as follows : " The Chinese Railway 
Company (represented by the Viceroys of Chili and 
Hupeh) in accord with the Imperial Chinese Govern- 
ment, entrusts the Societe d'fitude de Chemins de Fer en 
Chine (the Belgian syndicate) which shall appoint rep- 
resentatives for that purpose, with the direction, adminis- 
tration, and operating of the line from Hankow to Pe- 
king." According to Article II, " The Societe d'fitude- 
or the representatives of it shall appoint . . . shall or- 
ganize the various services, shall have the right to hire 
the personnel, which it shall have absolute right to dis- 
miss, or disband, and to fix its salaries according to a 
fixed schedule previously communicated to the Director 
General of the Chinese Railway Company. It shall 
make all purchases necessary for operating, maintaining 
or repairing the road, it shall fix the schedule of rates in 
the terms of concession contracts, collect revenues of all 
kinds and pay the operating and management expenses 
of the Company." 

85 See Rockhill, op. cit., No. 34. 



94 FOREIGN FINANCIAL CONTROL IN CHINA 

The loan itself is secured by a mortgage on the railway, 
rolling stock, etc In short, the control provisions are 
%in substance identical to those embodied in the English 
contracts; for we have to remember that the English 
control provisions were explicitly shaped after the Belgfian 
contract.^® In other words, the Belgian control pro- 
visions are financial in nature. Yet their ultimate po- 
litical purpose can hardly be denied. 

Later railways contracted or earmarked by the Bel- 
gian syndicate tended further to strengthen England's 
suspicions of Russia's political aims. "The significant 
% point is," says the Far Eastern Review, " that the last 
performance of this Company brings into effect the iden- 
tical scheme which the Russians long ago cherished to 
obtain railway domination in certain spheres in China." *^ 
%The lines referred to as secured by the Belgian company 
are a continuation of the Trans-Caspian System of Rus- 
sia through Sinkiang (Chinese Turkestan) and Kansu, 
and leading from Lanchow to Sian, H«»n, Kaifeng to 
the sea. The other Belgian project is a line longitud- 
inally through the province of Shansi and is to connect 
the above mentioned line with the Peking-Kalgan exten- 
sion, a Russian venture, at Tatungfu. The company 
"iias the option to extend this railway in the south to 
Chengtu, the capital of Szechuan. 

8» See Chapter II. 

"T See " Far Eastern Review," Vol. lo, pages 92 and 290. 



RUSSIA 95 

To this the Far Eastern Review remarks : " No rail- 
ways in China are likely to have such an important bear- 
ing, however, upon the political future of the country as 
these two routes which have now come under the dom- 
inance of the Belgian financial organization. Apart 
from its political bearing, however, the projected rail-' 
way will place in the hands of the Belgian syndicate 
the greatest amount of mileage held by any individual 
nation in China, and the two routes will embrace an 
area of country of tremendous importance to Russia, 
whose financiers are alleged to be interested in the Com- 
pagnie Generale de Chemins de Fer et de Tramways en 
Chine. Considered from a purely economic standpoint 
the proposed line is likely to have a tremendous influ- 
ence upon the development of one of the richest mineral- 
bearing provinces of China." ^® 

Our discourse on the Belgian schemes, though ap- 
parently a diversion from our theme, was to illustrate 
Russian political designs in the Far East. Aside from 
the improbability of an early construction of these rail- 
ways as a result of the war, and a consequent lack of 
practical value, the fact that the text of the agreements 
was not available to the author makes it inadvisable, 
if not impassible, to go into further details. 

The political character of Russian railways in China, 
at least previous to the Russo-Japanese War, is most ap- 

*■ See " Far Eastern Review," Vol. lo, page 89. 



96 FOREIGN FINANCIAL CONTROL IN CHINA 

parent in Manchuria. Here events were favorable for 
further attempts at advance. In 1900 the Boxer dis- 

^turbartces threw the whole of North China into chaos; 
and Russia immediately occupied Manchuria, osten- 
sibly to secure the maintenance of order. Newchwang 
|ind Mukden were occupied and a military occupation 
was regularly instituted along the whole Russian railway 
in Manchuria.^® Any intentions of a Russian occupation 

^however were repeatedly denied by the Russian minis- 
ter to China.* ^ Nevertheless Europe continued to be 

^alarmed at Russian activities and the Anglo-German con- 
vention of Oct. 16, 1900, was a direct outcome of the 
Manchurian situation.*^ Its main object was to restrain 

^any power which might be disposed to violate the prin- 
ciple of equal opportunity in China or her territorial 
integrity. 

Meanwhile the Powers were occupied with settling 
the questions arising out of the Boxer rebellion. After 
the legations had been relieved by the international ex- 
peditionary force, the Powers proceeded to negotiate 
with China upon the terms under which they would evac- 
uate Peking. Until a general treaty was concluded be- 
tween China and the cooperating Powers, it was obvious 
that it would be at least inappropriate for any individual 
power to seek to negotiate a separate treaty with China. 

88 See *' China," No. i, 1901, Vol. XCI, No. 391. 

*o See " China," No. i, 1901, XCI, Nos. 234, 256, and others. 

*i See Rockhill, op. cit., No. 14. 



RUSSIA 97 

But early in 1901 the news came out, of a draft of an § 
agreement into which China was supposed to have en- 
tered with Russia respecting Manchuria. At the inquiry 
by Japan and England of the Russian and Chinese Gov- 
ernments as to the existence of the alleged convention, 
both governments kept a strict silence. Whereupon 
China was warned by Great Britain, Germany, Japan 
and the United States against entering into a separate 
agreement with one power while it was negotiating for 
peace with all powers collectively.*^ Strongly pressed 
by the powers, China finally communicated the text of 
the agreement and asked immediately thereafter the re- 
spective Foreign Offices to mediate between her and 
Russia.*^ 

The principal terms of the Agreement were: ** Man- 
churia to be restored ; Assistance to be given to China * 
by Russia in keeping order; No army to be maintained 
by China until the completion of the Manchurian rail- 
way. The strength of the police is to be settled with 
Russia; they are not to possess artillery, and no for- 
eigners other than Russians are to be employed in it; 
Abolition of Chinese administration in the town of Chin- 
chou. China is not to grant any mining, railway or 
other rights without the permission of Russia in the ter- 
ritory upon the Russian border, i.e., Manchuria, Mon- 

*« See " China," No. 6, 1901, Vol. CXI, Nos. 79 and 106. 
« See " China," No. 6, 1901, Vol. CXI, No. 137. 
** See " China," No. 6, 1901, Vol. CXI, No. 130. 



98 FOREIGN FINANCIAL CONTROL IN CHINA 

golia, 111, Yarkand, etc., and Russia's permission is to 
be obtained before China builds railways in these. With 
reference to the damages suffered by the Manchurian 
Railway these shall be made good. . . . Instead of this, 
concessions may be accepted or existing contracts modi- 
fied. Until the last provisions are carried out, Russia 

Vill maintain an additional force for the protection of the 
Manchurian Railway! 

This agreement shows better than anything else the 
true ambitions of Russia in the Far East and the kind 
of control she desired to exercise — if it had not been 
for Japan. Russia's duplicity during and after the Boxer 
troubles may be illustrated by a quotation from Putnam 
Weale: "During 1901, Russia had three distinct and 
separate roles to play in China: the part of ally to all 
Europe; the part of China's dear and secret friend in 
Peking; and the part of Manchuria's real master in the 
invaded provinces; whilst over and above in Europe she 
had to quiet the secret fears of numerous Chancelleries 
busily inquiring as to her real plans in the future." *' 

Backed by the support of the Powers, China refused 
to sign and Russia withdrew temporarily.*® Then fol- 

•lowed the Anglo-Japanese alliance; whereupon Russia 
modified her demands in respect to Manchuria. On 

^ April 8, 1902, an agreement was concluded between Rus- 

^^ Sec Putnam Weale, " Reshaping of the Far East," page 263. 
*• See " China," No. 6, 1901, Vol. CXI, No. 238. 



RUSSIA 99 

• 

sia and China containing the following principal terms.* ^# 
Manchuria was to be restored to the Chinese Govern- 
ment; but China was to observe strictly the stipulations 
of th^ contract concluded with the Russo-Chinese Bank 
in 1896. Russia was to withdraw her troops gradually^ 
from Manchuria. Russia agrees to restore to the own- ^ ^t 
ers the Railway Shanhaikuan-Newchwang-Sinmintung. <3^ 
No other Power shall be allowed to participate in this 
railroad in any form* nor to occupy the territory evacu- 
ated. Should extension of the line be contemplated,' 
the Russian Government was to be consulted first; ex- 
penses for repair and working of said line were to be paid 
by China. 

The Russians did not observe these terms faithfully; 
on the contrary, they established themselves more firmly 
at the mouth of the Liao River.*® The diplomacy of 
Russia was accompanied by hurried exploitation on the* 
part of Russian speculators of the valuable timber re- 
gion of the Yalu River, by encroachments upon Korea, 
and by enormous expenditures at Dalny, which the Rus- 
sians destined for a great port. In these adventures 
and in the neglect of military precautions, Russia. was 
simply playing the game of Japan and hastening the mo- 
ment when this Power was to take over Russia's railway 
rights in South Manchuria. 

*7 See " China," No. 2, 1904, Vol. CX, page 36 ff. See also Rock- 
hill, op. cit.. No. 17. 
*« See " China," No. 2, 1904, Vol. CX, page 63. 



lOO FOREIGN FINANCIAL CONTROL IN CHINA 

The Treaty of Portsmouth of Aug. 23rd, 1905, de- 
%prived Russia of the southern part of the Manchurian 
Railway.*® Article VI says : " The Imperial Russian 
Government engages to transfer and assign to the Im- 
perial Government of Japan, without compensation and 
with the assent of the Chinese Government, the railway 
between Changchim (Kuanchengtzu) and Port Arthur 
and all its branches together with all rights, privileges, 
and properties appertaining thereto in that region, as 
well as all coal mines in the said region belonging to or 
worked for the benefit of the railway." — The consent of 
the Chinese Government was, of course, forthcoming. — 
According to article VII Japan and Russia engage to ex- 
ploit their respective railways in Manchuria " exclusively 
for commercial and industrial purposes and in no wise 
for strategic purposes." Article III stipulates: " Japan 
and Russia mutually engage, ( i ) To evacuate completely 
and simultaneously Manchuria except the territory af- 
fected by the lease of the Liaotung Peninsula, in con- 
formity with the provisions of additional Article I an- 
nexed to this Treaty; and (2) To restore entirely and 
completely to the exclusive administration of China all 
portions of Manchuria now in the occupation or under 
the control of the Japanese or Russian troops, with the 
exception of the territory above mentioned. Th^ Impe- 
rial Government of Russia declares that they have not 

*» See " British and Foreign State Papers/' Vol. 98, page 735. 



RUSSIA lOl 

in Manchuria any territorial advantages or preferential or 
exclusive concessions in impairment of Chinese sover- 
eignty or inconsistent with the principle of equal oppor- 
tunity." And in Article V : " The Imperial Russian 
Government transfers and assigns to the Imperial 
Governmment of Japan, with the consent of the Grov- 
emment of China, the lease of Port Arthur, Talien, and 
adjacent territory and territorial waters and all rights, 
privileges, and concessions connected with or forming 
part of such lease, and they also transfer and assign to 
the Imperial Government oi Jkpan all public works 
and properties in the territory affected by the above- 
mentioned lease." 

In other words, the Treaty of Portsmouth deprived 
Russia of her strategical stronghold in South Manchuria, 
of her railway rights in said region, and checked any* 
possible Russian ambitions at political control of all 
Manchuria. Russian control in the Russian " sphere " 
i.e., in North Manchuria, could therefore — legally — 
be based exclusively upon the railway agreements be- 
tween the Russo-Chinese Bank, respectively the Chinese 
Eastern Railway Company and the Chinese Grovemment. 
The control provisions have been analyzed above and the 
character and degree of control been stated. Two as- 
pects of Russian control in Manchuria, however, re-^ 
main to be investigated: the railway guards and the 
railway zones. As to the first point the writer has to 



I02 FOREIGN FINANCIAL CONTROL IN CHINA 

acknowledge his inability to secure accurate figures as 
to the number of soldiers employed. The amoimt has 
been constantly varying and the figures found in the liter- 
ature appear most unreliable. The figure is large or 
^small according to the sympathies or antipathies of the 
writers. The supplementary agreement to the Treaty of 
Portsmouth provides, that " within a period of eighteen 
months from that date (i.e., immediately after the Treaty 
of Peace comes into operation) the armies of the two 
countries shall be completely withdrawn from Manchuria 
except from the leased territory of the Liaotung Penin- 
sula." 

The Russian title to railway " zones " in North Man- 
churia is based upon Article VI of the Russo-Chinese 

^ Bank's treaty with China of Sept. 8, 1896.^^ The re- 
spective phrases read as follows : " As regards the land 
required by the Company for constructing, managing, 

^ and protecting the line and adjacent land, ... it will 
be given the Company without payment. ... As soon as 
the land comes under the management of the Company, 
they may erect thereon any buildings and carry on all 
kinds of work/' . . . Lawton, however, informs us that 
the French text reads quite differently : " La Societe 
^ura le droit absolu et exclusif de Tadministration de les 
terrains." '^ On the strength of these clauses, Russia 

^^ See Rockhill, op. cit., No. 32. 

51 See Lawton, " Empires of the Far East," Vol. I, page 1303. 



RUSSIA 103 

founded townships such as Harbin and Tsitsihar, which 
were under Russian administration, together with all 
other settlements and all the extensive tracts of lands held 
by the Company. China objected to the extensive ad- 
ministrative powers exercised by Russia, until the dispute 
was finally settled by an agreement of May loth, 1909. 

According to Harrison, " The last agreement between 
the Russian and Chinese Governments arose out of the 
protest of the Chinese Government against that part of 
the 1896 Treaty which bears upon the introduction of 
public administration in Harbin and other settlements of 
the railway zone. In a strictly legal sense, China had a 
very weak case, and Russia's consent to the new arrange- 
ment was in the nature of a concession, but one which is 
to be welcomed as creating a wholesome precedent in the 
direction of a wider recognition of China's sovereign 
rights within her own territory, the true reason for the 
original grant of special privileges being plain enough." ** 

The agreement is simply an appendix to the railway^ 
agreement of 1896. To use the text,**^ " In view of 
the mutual misunderstandings which have arisen in the 
interpretation of the contract for the construction and 
working of the Chinese Eastern Railway, dated 27th 
of August, 1896, on consideration of the question of 
the organization and introduction of public administra- 

52 See Harrison, " Peace or War East of Baikal ? " page 199. 
^^ See " British and Foreign State Papers," Vol. 102, page 396. 



I04 FOREIGN FINANCIAL CONTROL IN CHINA 

tion on the lands of the Railway, the Governments of 
Russia and China have established the following general 
rules: 

1. On the lands of the Chinese Eastern Railway, as a 
fundamental principle, are recognized the sovereign 
rights of China, which must not be prejudiced in any 
way. 

2. All sovereign rights of China on the lands of the 
Chinese Eastern Railway are exercised by China, and 

•neither the administration of the Railway nor public 
administrations shall under any pretext obstruct the ex- 
ercise of these rights, if such do not infringe any of the 
treaties which have been concluded by the Chinese East- 
ern Railway Company. 

3. All the treaties of the Chinese Eastern Railway at 
present in operation remain as before in full force. 

6. On the lands of the Chinese Eastern Railway Com- 
pany in settlements which possess commercial import- 
ance public administration shall be formed. The inhab- 
itants of these settlements, in conformity with the com- 
mercial importance of a given settlement and the number 
of its population, shall elect delegates who, in their turn, 
shall choose an Executive Committee, or the inhabitants 
themselves shall directly superintend public affairs and 
elect from their nimiber one representative who shall 
carry into effect the resolutions of the general assembly. 
^ 7. On the lands of the Chinese Eastern Railway Com- 



RUSSIA 105 

pany, both the Chinese and foreign population enjoy 
the same rights and assume the same obligations, without 
the slightest difference between them. 

8. All inhabitants who own a certain amount of im- 
movable property or pay a certain annual rental and* 
established taxes enjoy the right of participation in the 
election of delegates. 

9. The President is elected by the Assembly of Dele- 
gates from their midst, irrespective of nationality. 

ID. All matters which concern the management and 
good order of the settlements are subject to the jurisdic-* 
tion of the Assembly of Delegates, etc., etc. 

11. The Assembly of Delegates elects from its midst, 
irrespective of nationality, members of the Executive 
Committee. Their number must not be more than three. 
Besides this, the President of the Tsiao-she-tsui (Chi- 
nese Railway Bureau) and the President of the Railway 
appoint one delegate each. The members of election and 
the delegates together with their President constitute 
the Executive Committee. 

12. The President of the Assembly of Delegates is 
at the same time President of the Executive Commit- 
tee. 

13. The President of the Tsiao-she-tsui and the Pres- 
ident of the Railway, occupying a position higher than 
that of the President of the Assembly of Delegates and 
Executive Committee, are invested with the power of 



lo6 FOREIGN FINANCIAL CONTROL IN CHINA 

control and the right of personal revision, which they 
exercise when this is deemed to be indispensable, etc., 
etc. 

14. In the event of the disagreement of the President 
of the Tsiao-she-tsui or the President of the Railway 
with the resolutions of the Assembly of Delegates, these 
must be transferred to the Assembly for additional inves- 
tigation. Its resolution shall be deemed binding if it is 
passed by three-fourths of the votes of members present 
at the sitting of the Assembly. 

15. Important public and financial questions arising in 
the settlements of the expropriated Zone of the Railway, 
on consideration by the Assembly of Delegates, are trans- 
ferred to the President of the Tsiao-she-tsui and to the 
administration of the Chinese Eastern Railway for joint 
consideration and confirmation. 

16. Lands which have been allotted specially for the 
needs of the Railway are subject to the independent con- 

*trol of the Chinese Eastern Railway, i.e., for stations, 
workshops, and so forth, etc. 

In commenting in a very favorable way upon the 
provisions of this agreement as not establishing special 
privileges for Russia and as not being materially diflFerent 
from the privileges enjoyed in any other international 
settlements such as Tientsin, Shanghai and others, Har- 
rison says : " The Russian position is made all the more 
impregnable in the light of the perfect freedom which 



RUSSIA 107 

every other Power enjoys to establish, if it so wishes, 
its own settlements at Harbin. Hitherto, however, no 
effort has apparently been made to take advantage of 
this right, and all foreigners, with singular unanimity, 
prefer to live in the Russian settlement." *^* And 
further : " Happily, it now seems probable that the 
Powers will yield on the point of municipal adminis- 
tration, it being clearly stipulated on Russia's part that 
she does not claim any right of legal jurisdiction over the 
persons of foreign subjects resident in the Russian set- 
tlement of Harbin or elsewhere within the railway zone. 
Extraterritoriality obtains at Harbin, as it does else-* 
where throughout China, and though the Russian police 
may arrest a foreigner caught in flagrante delicto, they 
must at once surrender him to his consul for trial." *' 

Extraterritoriality and the legal status of interna- 
tional settlements however are not the object of our 
investigation. We have given a lengthy quotation from 
the latest Russo-Chinese railway zone agreement to prove 
our contention that the post-bellum control exercised by 
Russia in China is — legally — non-political. Though 
Russia may or may not have had an ultimate absorption # 
of North Manchuria in view, the Russian control exer- 
cised in North Manchuria is strictly based upon the rail- 
way agreements including the supplementary interpreta- 



5* See Harrison, op. cit., page 201. 
5' See Harrison, op. cit., page 204. 



io8 FOREIGN FINANCIAL CONTROL IN CHINA 

tion of the agreements to be found in the agreement of 
1909. 

" The spirit which animated the Russian side of the 
negotiations for the agreement concluded with China on 
the loth of May, 1909, was indeed so conciliatory that 
the Chinese at first suspected therein some deep-laid and 
sinister designs. The high-handed methods of the auto- 
cratic Russian Railway Company were replaced by a 
sweet reasonableness which the Peking Government were 
quite tmable to understand, but of which they soon pro- 
ceeded to take every advantage. No sooner had they 
realized that Russia was prepared to allow the exercise 
of their sovereign rights in the Manchurian Railway set- 
tlements, than they proceeded to encourage American 
and German ambitions, sedulously fomenting differences 
at Harbin, Khailar, and other places, by which means 
they hoped to obtain full administrative control of the 
municipalities.'' Such are the words of Mr. Bland, when 
commenting on Russia's post-bellum attitude.*® Harri- 
son uses a similar language : " Russia was inclined to 
be too self-assertive before the war, and the inevitable 
nemesis overtook her: to-day, on the other hand, her 
representatives appear to have gone to the other extreme, 
with the result that Russian vested interests are in dan- 
ger of being seriously jeopardized." "^ 



5* See Bland, op. cit., page 336. 
5T Sec Harrison, op. cit., page 209. 



RUSSIA 109 

Of course during the evacuation period, Russia was 
rather slow in handing the sovereign rights over North 
Manchuria back to China. *' Russians seem to have 
watched the Japanese and followed their lead in political* 
matters. As the Japanese armies were withdrawn, so, 
also, in about the same ratio, were the Russian armies 
removed from China's provinces." ®® The same writer 
continues : " In one important matter, however, Rus- 
sia's post-bellum policy in Manchuria differed from that 
of Japan. This is in commercial affairs. The Rus- 
sians never have pursued a niggardly policy in regard* 
to the trade of other nations in Manchuria. On the con- 
trary, during the Russian regime before the war foreign 
trade in the country greatly increased, especially that 
of the United States, owing to the fact that a condition 
of comparative order prevailed, and that the Russians 
interposed no obstacles to commerce. The present in- 
dustrial situation of Russia does not require special ex- 
ploitation in her favor of eastern markets. . . . After 
the war, Russia resumed this policy which was more 
sharply thrown into relief because of Japan's opposite 
attitude in the south. Russia made no attempt to pre- 
vent foreigners from entering the country after peace was 
established. Instead of interposing obstacles, to the im- 
portation of products, as Japan did in her sphere, Rus- 

58 See Millard, " America and the Far Eastern Question," page 
276. 



no FOREIGN FINANCIAL CONTROL IN CHINA 

sian officials smoothed their way by providing routes of 
access." 

But while the control exercised by Russia in Man- 
• churia, of late, was very moderate, she nevertheless 
strengthened her position considerably by new railway 
enterprises in these regions. In the agreements of July 
30th, 1907, July 4th, 1 9 10, and July 3rd, 19 16, Japan 
and Russia mutually guarantee their vested and future 
interests in their respective spheres and promise each 
other support in case of foreign interference.*^® The 
agreements suggest that Japan and Russia have made up 
^their minds, eventually to divide Manchuria between 
them, and the first fruits of these agreements are to be 
seen in several new railroad contracts as well as in the 
effective exclusion of other powers. 

Russia had, immediately after the war, begun calmly 
to conduct surveys in the provinces of Amur and Baikalia 
Vith a view to providing for the regeneration of Rus- 
sian policy in the Far East by means of a colossal rail- 
way undertaking — the Amtu* Railway. A provision 
^or connection of the Amur Railway at Blagoveshchensk 
was made in 191 4 by means of a new Manchurian rail- 
way contract. A detailed account of jthis contract can- 
not be given for the same reasons which hindered us 
from investigating any other railway agreements con- 

8* The agreements will be analyzed in Chapter VI, since they arc 
of greater importance to Japan than to Russia. 



RUSSIA 1 1 1 

eluded within the last three years. We take our infor- 
mation on the project from the Far Eastern Review, 
which says : ®^ " An important agreement was signed in 
Peking on March 27th last between the Russo-Asiatic 
Bank, represented by Mr. L. de Hoyer, and the Chinese 
Government, represented by Mr. Liang Tung-yen, the 
Minister of Communications, and Mr. Chou Hsu-shih, 
Minister of Finance, for the construction of a railway 
connecting the cities of Harbin, Mergen, Aigun, and 
Tsitsihar, in Northern Manchuria. Harbin is at the 
junction of the Siberian Railway and the line running 
south to Changchim and thence to Dalny, while Tsit- 
sihar is connected with the Siberian Railway by a light 
line which will be taken over under the agreement just 
signed. Mergen is a little more than half way between 
Tsitsihar and Aigim, which is on the Amur River. 
North of Aigun, on the opposite side of the Amur, is the 
city of Blagoveshchensk, which the new railway is des- 
tined to serve. Connection will be made by means of 
ferry boats with what is now the village of Heiheifu, 
opposite Blagoveshchensk, where the railway will termi- 
nate. The total length of the proposed railway is ap- 
proximately 1,000 kilometers. It will link up the Sibe- 
rian Railway with the Amur River, and will consolidate 
Russian interests, and incidentally develop great areas 
of valuable territory, in North Manchuria. An inter- 

80 Sec " Far Eastern Review," Vol. 11, pages 150 and 385. 



112 FOREIGN FINANCIAL CONTROL IN CHINA 

csting point is that it will cover the northern section 
of what is known as the Chinchow-Aigun project, the 
agreement for which is held by the American group of 
bankers, but which was rendered void by the energetic 
protests of Japan that the proposed line would parallel 
the South Manchuria Railroad. 

" The agreement is for a loan of 50 million roubles, 
and an additional amount which might be required to 
complete the project. The loan is to be floated when 
financial conditions may permit after the war, and in 
whatever markets the Russo-Asiatic Bank may deem 
money to be available. The agreement is regarded as 
an improvement on other railway agreements in China 
where the interest of the financiers are concerned with 
control of expenditure, etc., while the Chinese Grovem- 
ment gains a distinct pecuniary advantage owing to an 
arrangement being made whereby the working of ex- 
change cannot be so disastrous as in the case of other 
railroad liijes. . . . The bondholders receive ample pro- 
tection in the usual way by having the line, etc., as secur- 
ity, by the employment of qualified engineers and ac- 
countants, etc., and in addition by the arrangement that 
the earnings of the railway shall be deposited in branches 
of the Russo- Asiatic Bank." 

Furthermore Russia demands from China a concession 
for a railway from Kiakhta to Urga and through Mon- 
golia to Kalgan, which is to connect the Siberian system 



RUSSIA 113 

with Peking via the Peking-Kalgan line. But this pro- 
ject is of the future.®^ Another project, namely, for a 
railway from Kokand, the terminus of the Central Asian ^ 
line, through Kashgar, Hami, Soochow, to Lanchow-fu, 
in China, has also been set aside for Russia to finance 
and construct.^^ These lines would be purely for the 
advancement of Russia's strategical position in Mongolia 
and China, and would bring the northwest and western 
provinces within the Russian sphere. 

The first steps towards the establishment of a Russian 
sphere, if not a Russian protectorate, have been taken I 
under the Russo-Mongolian agreement and Protocol of 
the 2ist of October, 3rd of November, 1912, respec- 
tively.*^ The agreement provides for the exclusion of 
Chinese influence in Mongolia. According to Article 
I, Mongolia is " to admit neither the presence of Chi- 
nese troops on her territory nor the colonization of 
her land by Chinese." The main provisions of the pro- 
tocol are as follows: Russian subjects shall enjoy the 
right to trade freely without payment of any duties, taxes 
or other dues and to open financial institutions and fac- 
tories wherever they choose. Russian subjects shall be 
empowered to enter into agreements with the Mongolian 

®^ Sec U. S. Consular Reports, No. 245, Oct. 20, 1913, page 354. 

«2 See " Far Eastern Review," Vol. 10, page 290. 

•3 The text of all Mongolian agreements, etc., is found in the 
American Journal of International LaWj Vol. 10, No. 4, supple- 
ment, pages 239 ff. 



114 FOREIGN FINANCIAL CONTROL IN CHINA 

Government respecting the working of minerals arid tim- 
ber, fisheries, etc. Russians shall retain the right to 
institute a postal service for the dispatch of letters and 
the transit of wares between all points of Mongolia and 
Russian consuls in case of need shall avail themselves of 
Mongolian Government postal establishments. 

China had to acknowledge this state of aflairs and 
in the Peking agreement of Nov. 5th, 1913, agreed not 
to deal with the Mongols without consent or assistance 
of the Russian Government, though she remains suzerain 
over Mongolia. 

On Sept. 30th, 1914, Russia entered into another agree- 
^ ment with Mongolia which strengthened Russia's influ- 
ence in that country as far as railways are concerned.** 
By this agreement Russia obtained the right to advise 
Outer Mongolia in deciding what railway lines to build 
and the method of procedure. Russia recognizes Mon- 
Igolia's right to build the railways within its own boun- 
daries if the funds can be raised there, but Mongolia is 
pledged to consult Russia before making concessions for 
railway construction to other nations. Since Mongolia 
is notoriously poor, it is evident that Russia has the ex- 
clusive right to build railways in this country. 

The tripartite agreement of June 7th, 1915, is the final 
acknowledgment of the existing state of aflFairs.*' Both 

•♦ See Am. J I. of Int. Law, Vol. 10, No. 4, page 249. 
®5 See Am. J I. of Int. Law, Vol. 10, No. 4, page 251. 



RUSSIA 115 

China and Russia agree to abstain from all interference 
with the internal administration of CXiter Mongolia. 
Russian right to free trade is confirmed, while China is 
nominally acknowledged as suzerain. Practically, how- 
ever. Outer Mongolia is under joint Russian and Chi- 
nese protection. 

Mr. E. T. Williams sums up Russia's position in Mon- 
golia: "These agreements, then, have considerably in- 
creased the political and commercial rights of Russia in 
Mongolia, and they thus tend to restore, if not to en- 
hance, Russian prestige in the Far East which had been 
somewhat lessened by the result of the Russo-Japanese 
War." «« 

To the beneficent effects to be expected from Russia's 
position in Mongolia, Mr. M. D. Carruthers bears wit- 
ness in his splendid work on " Unknown Mongolia." ^'' 
*• Taking for granted an autonomous Mongolia under 
the protection of Russia, we can prophesy far-reaching 
and fundamental changes in the lives of the people and 
in the future of the Mongol race. Mongolia will become 
— indeed, probably has already become — a land of ac- 
tivity and progress instead of, as formerly, a land of stag- 
nation and suppression." And again : " The Russian 
influence has obviously an advantage over that of the 
Chinese. The Russians fraternize with the Mongol 

•8 See Am, J I. of Int. Law, Vol. 10, No. 4, page 808. 
•7 See Carruthers, " Unknown Mongolia," pages 315, 317, and In- 
troduction, page IV. 



Il6 FOREIGN FINANCIAL CONTROL IN CHINA 

races, the race-barrier between them being much less 
marked than that between the Chinese and the Mongols." 
While Lord Curzon says in an introduction to the book : 
" We see the Mongolian tribesmen, heirs of a mighty 
past, long withered under the blighting influence of de- 
generate Lamaism, but now turning to the risen sun of 
Russia to find a warmth and a protection which Chinese 
suzerainty has failed to give them." 

These quotations lead us to a few concluding remarks 
about the secret of Russian success in Eastern Asia, 
based as it is on a national character and a disposition, 
different from the rest of Europe. We began our chap- 
ter by contrasting English and Russian governmental 
methods and shall now conclude with a few words about 
the differences in attitude. The attitude of Russia to- 
wards Asiatic peoples and the rule of her of subject 
races in Asia, may have been less humane, conscientious, 
and educative than the attitude of England and the 
rule by her of Asiatic subject races; but the Russians 
who exercise the administrative functions in the East 
are naturally more affable than the English, and are 
more indifferent to moral and religious propagandas. 
From origin, temperament, and personal habits;, and 
through intimate contact with Asiatics from the dawn 
of history, the Russian is nearer to the Asiatic point of 
view than the Englishman. Says Wirt Gerrare : " Rus- 
sia's . . . occupation of Northern and Central Asia has 



RUSSIA 117 

been of benefit to the inhabitants. It was only her 
methods of conquest which were unnecessarily severe. 
... Generally the Russian treatment of the native and 
subdued races if not perfect, or ethically correct, is not 
worse than that of other civilized Christian nations.*' •^ 
Vladimir maintains that " Russian annexation in Eastern 
Asia has been favorable to the Chinese people, opening 
new fields for their trading enterprise. The Russians^ 
have had the greatest toleration for the customs of the 
Chinese and for their local self-government, even when 
it was prejudiced to their legal sovereignty." ®® Even 
Lord Curzon in his book " Russia in Central Asia " ad- 
mits that Russia has in her career of Asiatic conquest 
achieved a successful and a salutary end, and that Rus- 
sia's dominion is " loyally accepted by the conquered 
races." ^^ 

Finally the relations between Russia and China cannot 
be understood without taking into account the fact that 
in spite of encroachments upon China by Russia, the 
two countries have never actually been in a state of war, 
excepting a few minor boundary disturbances. While 
European powers in general were not permitted to send * 
diplomatic representatives to Peking until 1858, Russia 
had maintained a semi-official embassy there from 1692,''^ 

«* See Wirt Gerrare^ op. cit., page 317. 

«• See Vladimir, op. cit, page 317. 

^® See Curzon, " Russia in Central Asia," Chapter X. 

^1 See Ravenstein, " The Russians on the Amur," page 71. 



Il8 FOREIGN FINANCIAL CONTROL IN CHINA 

and the expenses of the embassy even were partially 
sustained by China. The Russian representative has 
always been persona grata at the Court of China and has 
thus been able to enjoy a confidence denied to others. 

Apparently nothing could shake Russia's faith in her 
Far Eastern policy. Russian policy in Asia has never 
changed; it may have been checked at times, but Russia 
quietly awaited her opportunity and at the right moment 
pressed forward and regained lost ground. 

It is the absence of a definite or at least ulterior aim 
which distinguishes the Chinese policy of England from 
that of Russia ; for in regard to Russia we have a clear 
and declared Asiatic policy, which during centuries has 
remained fixed. 

No wonder then, that even in 191 5, a Russian writer 
having in mind Manchuria and Mongolia, could write: 
^' We find ourselves on the eve of new colonial adven- 
tures. In a word, the historical phase which was passed 
through before the Revolution, is about to be renewed." ''^ 

In brief, Russia's chances to reach her aims were 
greater than those of all other Powers and she would 
have been able to carry out her plans, if it had not been 
for two factors that were a curb to her expansion : 
Japan and the unrest within the Russian Empire. 

72 See Alexinsky, " Russia and the Great War," page 22. 



CHAPTER IV 



FRANCE 



Of all Western countries, it has been the intercourse 
of France with China which, apart from trade, has been 
considerable. Both the earlier knowledge of the West 
acquired by China and that of China acquired by the 
West were mainly achieved by French missionaries, who 
also have played an important part politically. The acci- 
dent of the dispatch of an envoy by the King of Annam* 
to the court of Louis XIV turned the eyes of that mon- 
arch and of the ecclesiastics eastward to the possibility 
of obtaining political influence in Indo-China. In 1787 
Bishop Pigneaux de Bretaine tried — though in vain — * 
to bring Tonkin under French rule. His designs were 
frustrated by the French Revolution and only in 1858 ' 
another French force was dispatched to Indo-China. 
This time French attempts were successful, culminating. 
in the final annexation of Cochin-China in 1862. 

A protectorate over Cambodia was established in i863.« 

In the treaty of 1874, France acknowledged the inde-, 

pendence of Annam; but Annam ceded — in Article V 

119 



I20 FOREIGN FINANCIAL CONTROL IN CHINA 

— to France all territory already taken by France in 
the south. ^ 

^ In 1884 the " Convention Foumier '* was signed by 
which France bound herself to protect against all aggres- 
sion by any nation whatever, and in all circumstances 
the southern frontiers of China and Tongking. This con- 

,vention was confirmed by China in the treaty of 1885 
under which France engaged herself to " re-establish and 
maintain order in those provinces of Annam which bor- 
der upon the Chinese Empire." ^ In Article VII China 

♦agreed that in case she should decide on constructing 
railways, she would have recourse to French industries. 

This protectorate then formed the basis for further 
^advance on China proper, the first and most important 
means of which was to be a railway into Yunnan. And 
the first step towards a railway policy was marked by 
the convention of 1895, the fifth clause of which says: 
" It is understood that China, for the exploitation of its 

^ mines in the provinces of Yunnan, Kwangsi, and Kwang- 
tung may call upon, in the first instance, French manu- 
facturers and engineers, the exploitation remaining 
nevertheless subject to the rules proclaimed by the Im- 
perial Government as regarding national industries. It 

Ss agreed that railways either those already in existence 

1 See " British and Foreign State Papers,'* Vol. 65, page 375. 

2 See "Documents diplomatiques. Affaires de Qiine et du Ton- 
kin, 1884-1885," page 283 ff. 



FRANCE 121 

or those projected in Annam may, after mutual agree- 
ment and under conditions to be defined, be continued on 
Chinese territory." ' 

On the strength of this agreement French railway en- 
terprise in the south of China was seriously thought of ) 
and proposed to China in the years 1897 and 1898, when 
the construction of a comprehensive system of railways 
in Indo-China was mooted. 

The growth of French influence and railway enterprise 
in Southern China marks the commencement of the 
realization of certain French ambitions for the further- 
ance of which Tongking was occupied. The most remark- 
able utterance in reference to France's policy is to be 
found in a most valuable work by M. Doumer, the late 
Governor-'General of Indo-China, entitled, " LTndo- 
Chine Franqaise." He writes : " Le chemin de fer de 
penetration au Yunnan, par la vallee du Fleuve Rouge, 
avait une importance politique qui n'etait pas moindre 
que son importance commerciale indeniable. Long- 
temps, le Tonkin ne nous avait paru valoir que par 
Tacces qu'il donnait au Yunnan. On a tres justement 
reconnu par la suite qu'il avait une valeur propre; mais 

3 See Rockhill, op. cit., No. 3. 

The French text is to be found in "Documents diplomatiques, 
Chine, 1894-1898," pages 16-19, and reads: "La Chine pourra 
s'adresser a des ingenieurs et a des industries frangais pour I'ex- 
ploitation des mines . . . les voies ferrees pourront etre prolongees 
sur le territoire Chinois," etc. 



122 FOREIGN FINANCIAL CONTROL IN CHINA 

* 

ce n'etait pas une raison pour oublier le but de notre 
pirse de possession." * 

In other words, Tongking was occupied in order to pro- 
/vide a convenient means for the penetration of South- 
em China by a railway. But what were the motives 
for penetration ? This question may in part be answered 
by going back to the motives behind the acquisition of 
the rest of French-China. They are thus summarized by 
Dubois et Ferrier in their work " Colonies Franqaises." ^ 
" L'acquisition de la Cochinchine, le protectorat du Cam- 
bodge, sont dus, en effet, comme nos progres en Af rique 
occidentale, a la tenacite des officiers. . . . Sans la 
guerre anglo-frangaise de Chine qui, vite achevee, laissa 
disponibles des forces militaires en Extreme-Orient, nos 
amiraux n'auraient point sans doute obtenu les resources 
indispensables au succes. Au reste une politique essen- 
tiellement commerciale et dont Tespoir principal reposait 
sur la conquete de nouveaux marches en pays peuples 
devait tenir a prendre position a proximite de T Empire 
Chinois. D'autres mobiles, en particulier le desir 
d'appuyer la propagande religieuse, renforcerent cette 
premiere conviction. L'intelligence de nos d'escadre, le 
point d'honneur de ne pas lacher prise, une f ois engages, 

* See Doumer, " L'Indo-Chine Frangaise," page 330. See also P. 
Leroy Beaulieu, " De la Colonisation," Vol. II, Chap. XI, Table de 
Matieres, page 695 : " Le but primitif de notre etablissement an 
Tonkin : I'utilisation du * fleuve Rouge ' pour la penetration en 
Chine." 

* See Dubois et Ferrier. " Colonies Frangaises," pages 287 and 810. 



FRANCE 123 

firent le reste "... and again : *' C'etait aussi la 
revelation de la richesse miniere du Yun-nan, nouvel 
attrait, et nouvelle raison pour les Franqais de s'interesser 
aux provinces septentrionales de Tempire d'Annam. 
Occupation d'un pays plus salubre d'un debouche et d'une 
voie d'acces de Tempire chinois, d'un fleuve plus maniable 
que le Mekong, tels se presentaient aux esprits les avan- 
tages d'une entreprise conseillee par Jean Dupuis et que 
Tamiral Dupre esperait mener a bonne fin, grace a Tex- 
perience particuliere de Francis Garnier." 

Mr. Hazen, the American historian, writes in his book 
" Europe Since 1815 " : under the masterful influence of 
Jules Ferry, prime minister in 1881, and again from 
1883 to 1885, the Republic embarked upon an aggressive * 
foreign policy. She established a protectorate over 
Tunis; sent an expedition to Tonkin, to Madagascar; 
founded the French Congo. This policy aroused bitter 
opposition from the beginning, and entailed large ex- 
penditures, but Ferry, regardless of growing opposition, 
forced it through, in the end to his own undoing. His 
motives in throwing France into these ventures were 
various. One reason was economic. France was feel-* 
ing the rivalry of Germany and Italy, and Ferry believed 

* 

that she must gain new markets as compensation for 
those she was gradually losing. Again, France would ^ 
gain in prestige abroad, and in her own feeling of con- 
tentment, if she turned her attention to empire building 



124 FOREIGN FINANCIAL CONTROL IN CHINA 

and ceased to think morbidly of her losses in the Ger- 
man war. Her outlook would be broader. Moreover, 
she could not aflord to be passive when other nations 
about her were reaching out for Africa and Asia. The 
era of imperialism had begun. France must participate 
in the movement or be left hopelessly behind in the 
rivalry of nations. Under Ferry's resolute leadership 
the policy of expansion was carried out, and the colonial, 
possessions of France were greatly increased, but at the 
expense of political peace at home."* 

France had to fall in line with the race for Empire 
and economic expansion. She was feeling the economic 
competition of all other nations. Furthermore France 
had retained her position as a great money-lending coun- 
try; and she naturally preferred to invest her money in 
colonies and spheres of interest of her own. 

Therefore, when in 1897, the era of spheres of in- 
terest, and the battle of concessions in China began, 

^France lost no time in asserting herself. The greatest 
instrumentality of French ambitions in South China was 

* M. Doumer. This energetic and ambitious statesman 
urged the adoption of a considerable railway program 
upon the French Government. In his speech to the 
Conseil Superieur de ITndo-Chine he referred to the 
aggressive attitude of other Powers, and emphasized the 
necessity of outbidding France's rivals in the South of 

« See Hazen, " Europe Since 1815," page 353. 



FRANCE 125 

China. To use his own words : " La question des 
chemins de fer dans tout T Extreme-Orient est aujourd'- 
hui a I'ordre du jour, comme en temoignent les efforts 
des rivaux de la France et les missions officielles en- 
voyees en Chine. . . . UAngleterre, avec une har- 
diesse que, de notre cote, nous n'avons pas montree 
jusqu'ici, se met en marche par la Birmanie vers le Yun- 
nan et le Ssetchouen qui semblaient reserves a notre 
penetration commerciale. Pourtant, si nous savons 
vouloir, nous devons triompher dans cette lutte pacifique. 
Nous nous trouvons favorises grace aux facilites que 
nous donne la vallee du Fleuve Rouge pour atteindre le 
Yunnan. Mais il faut profiter de cette situation et join- 
dre aux efforts f aits par le Gouvemement de la Metropole 
Taction de la Colonie pour construire le reseau indo- 
chinois qui servira de base a notre penetration en 
Chine." "^ 

A similar view is expressed by Dubois et Ferrier: 
" L'intervention directe de plusieurs puissances europeen- 
nes en Chine fait a nos hommes d'etat un devoir pressant 
d'assurer cette nouvelle expansion de notre colonie, con- 
stituee d'hier, vers un pays libre de quatre cent millions 
d'habitants. ... It faut done pour rendre efficace 
le bienfait de ce voisinage, prendre Tinitiative 
d'une penetration qui nous rapproche le plus tot possible 
des regions les mieux dotees. Aussi Toeuvre de notre 

^ See Doumer, op. cit., page 326. 



126 FOREIGN FINANCIAL CONTROL IN CHINA 

diplomatic commerciale des dix demieres annees en 
Chine, est-cUe une oeuvre profondement solidaire dc 
notre expansion indo-chinoise." ® 

In 1897 and early in 1898, France used a policy of 
^pressure upon China, similar to that exercised by other 
Powers. On April loth the Chinese Govenmient ac- 
quiesced in the following demands of France : ® 

1. The Chinese Government grants to the French Gov- 
•emment, or to the French Company, which the latter 

may designate, the right to make a railway from the 
frontier of Tonking to Yunnanfu: the Chinese Gov- 
ernment having no other responsibility but to furnish 
land for the road and its dependencies. The route of 
this line is actually surveyed, and will be fixed later on 
in agreement with the two Governments. Regulations 
will be jointly made. 

2. The Chinese Government, in consideration of its 
• friendship for France, leases the bay of Kuangchouwan, 

for 99 years, to the French Government, which may 
establish a naval station and coal depot there. The 
boundaries of the Concession will be fixed hereafter by 
agreement between the two Governments, after examina- 
tion on the spot. The question of rental will be arranged 
later on. 

* See Dubois, op. cit., page 824. 

® See " Documents diplomatiques, Chine, 1894-1898," pages 49 to 
51. English texts given by Rockhill, op. cit., Nos. 36 and 24. Sec 
also " British Blue Book, China," No. i, 1899, Vol. CIX, No. 17. 



FRANCE 127 

3. When the Chinese Government organizes a definite 
Postal Service and places a high functionary at its head,* 
it proposes to call for the help of foreign officers, and 
declares itself willing to take account of the recommenda- 
tions of the French Government in respect to the selec- 
tion of the stafl. 

4. With the purpose of assuring the relations of 
neighborliness and friendship between China and France ; 
with the purpose, equally, of seeing the territorial in- 
tegrity of the Chinese Empire maintained and, further, 
because of the necessity of taking care that no change 
be introduced in the existing situation as regards the 
provinces bordering on Tongking,^^ the Government of 
the Republic would attach particular value to receiving 
from the Chinese Government an assurance that it will 
not cede to any other Power all or a part of the territory 
of those provinces, either definitely or temporarily, or 
on lease, or by any title whatsoever. 

A declaration concerning the non-alienation of the 
Island of Hainan had been given by the Chinese as early * 
as March 15th, 1897.^^ 

Having gained their points the French began railway 
construction. M. Doumer proposed to the Conseil 
Superieur a comprehensive railway scheme for the 

i<* The French text reads here : " Par suite de la necessity ne comte 
de veiller i ce que dans les provinces limitrophes du Tonkin, il ne 
soit apport6 aucune modification il^tat de fait et de droit existant." 

11 See " Documents diplomatiques^ Chine, 1894-1898," page 33. 



128 FOREIGN FINANCIAL CONTROL IN CHINA 

French colonies, including a line from Haiphong to 
Hanoi with an extension to Yunnan. After the author- 
ization of the scheme by this body M. Doumer proceeded 
to Paris to obtain the sanction of the French Chamber. 
The law authorizing the Government of Indo-China to 
t)orrow 200,000,000 francs for exclusive use of a rail- 
road system was promulgated on the 25th of Dec, 1898.^^ 
In Article III the Government of Indo-China is author- 
ized to grant a guarantee of interest to the Company 
which was to become the " concessionaire " of this line. 
The money which the colonial government might be 
called on to furnish is, in turn, guaranteed by the French 
Republic. 

Owing to the Boxer troubles, little was done towards 
commencing railroad building in Yunnan and only the 
•construction of the French colonial line from Haiphong 
to Hanoi and thence to Laokay was undertaken. ^^ But 
in 1 90 1, M. Doumer succeeded in constituting a syndi- 
cate composed of the principal financial houses of Paris, 
and in concluding with this syndicate a convention for 
the building of the railway from Laokay to Yunnan- 
hsien and for the working of the whole line from Haip- 
hong to Yunnanhsien.^^ The syndicate is the exclusive 

12 See Doumer, op. cit., page 329 ; and " Documents diploma- 
tiques, Chine, Juin-Octobre, 1900." 

^3 See Kent, op. cit., page 162. 

^* See Doumer, op, cit, pages 343 ff. and " Documents Diploma- 
tiques." See also Rockhill, op. cit., page 405. 



FRANCE 129 

concessionaire and is to build the railway from Laokay 
to Yunnan, with a total length of 468 kilometers at its 
own expense and risk, while it receives from the govern- 
ment of Indo-China, entirely constructed and ready for 
exploitation, the road from Haiphong to Laokay, being 
385 kilometers long. The total line is conceded to the 
syndicate for 75 years, and is to be exploited at the ex- 
pense and risk of the concessionaire with eventual share 
in the profits by the colonial government (avec partage 
eventuel des benefices entre celui-ci et le Gouvernement 
general). 

The capital required for construction of the railway 
to Yunnan and for exploitation of the entire line from 
Haiphong to Yunnan was 101,000,000 francs and was 
constituted as follows: The stock capital of the syn- 
dicate, 12,500,000 francs; a subvention from the Gov- 
ernment of Indo-China, another 12,500,000 francs; the 
rest, or 76,000,000 francs, in bonds guaranteed by the 
home government to the limit of an annuity of 3,000,000 
iFrancs yearly. 

This convention was signed on the 15th of June, 1901, 
was presented three days later for ratification to the 
Chamber of Deputies by the Minister of the Colonies and 
the Minister of Finance, and was finally ratified by law 
of July 5, 1901. Immediately thereafter the " Companie 
frangaise des chemins de f er de ITndo-Chine et du Yun- 
nan " was organized and the bonds issued. 



130 FOREIGN FINANCIAL CONTROL IN CHINA 

On October 28tfa, 1903, the conditions under which 
^ the extension was to be made on Cliinese territory were 
finally settled between the Chinese Government and the 
Frendi Minister.*' They comply with the concessions 
granted to France on the loth of April, 1898. France 
was to build, manage, and own the railway for eighty 
years. But " China retains full sovereign rights over 
the line, which in the event of China's being at war will 
not be considered neutral, but be placed under Chinese 
orders. China undertakes the sole responsibility of 
policing and protecting the railway, and on no accotmt 
can the railway ask for the assistance of foreign troops." 
There is to be no Chinese Government guarantee. In- 
deed the Chinese have nothing whatsoever to do with 
financing or managing of the line and they are deprived 
of all control and profit. 

In this latter respect French railway rights in China 
are at variance with those enjoyed by Russia in Man- 
churia. For Russia, as we have seen, had admitted the 
Chinese to financial and even administrative participa- 
tion — at least nominally. But otherwise, there is little 
distinction between French and Russian " control *' ; al- 
though French " control " is nominally exercised by a 
private company and is therefore financial, the close 
association of this Company with the French Govern- 
ment as manifested in the several conventions as well 

^^ See Rockhill, op. cit., page 405. 



FRANCE 131 

as the motives behind Frendi railway enterprise in Yun- 
nan, leave no room for doubt that French control in 
China, embodied in this French railway concession, is 
in spirit, somewhat political. The railway policy of 
France, like that of Russia, and as we ^all see like that 
of Japan, and to some extent that of Germany, "has 
been a means to an end, an incident in a larger policy, 
which can only be described as in intention a policy of 
colonization." ^® 

Nevertheless French policy in China proper has been 
by no means as aggressive as that of Russia before the 
Russo-Japanese War. With the exception of a few un- 
successful attempts at further concessions in the south- 
em provinces, which were to be extensions of the existing 
railway system, France did little in Exploiting her sphere 
politically. 

Commercially, however, France took full advantage 
of her privileged position : her " control '* enabled her to 
establish her trade at the expense of other nations by* 
means of preferential tariffs to the furtherance of French 
commerce. No doubt the exceedingly high costs of con- 
struction and operation of the Yunnan railway forced 
France to exact high charges. But these high charges 
were not the only reason that prompted wealthy Chinese 
citizens to contemplate a railway from Yunnan to Nan- 
king which would break the French monopoly of the 

*• Sec Kent, op. cit, page 93. 



132 FOREIGN FINANCIAL CONTROL IN CHINA 

carrying trade of Yunnan towards the sea. The best 
illustration of the unsatisfactory state of affairs is to 
be found in a consular report by Mr. G. E. Anderson, 
American Consul General at Hongkong.^'' According 
to this report the railroad to be constructed by Chinese 
is " to open Yunnan with the seaboard through Chinese 
territory and thus avoid present unfavorable conditions 
found in the transit tax charged for the transfer of 
foreign goods not of French or Indo-French origin 
crossing Indo-China and also to avoid the high freight 
rates over the French railway into Yunnan which now 
obtain." In another Report, Mr. Anderson remarks: 
" The restricted use and general unsatisfactory working 
of the railway is due to the abnormally and prohibitive 
high freight rates." ^® 

The principal reason for such discrimination was, of 
Vourse, to protect and advance the industries of France 
% and her colonies. But it is interesting to note that in 
this France had no success. The British Minister to 
China, commenting on French railway enterprise in 
Yunnan, had remarked as early as 1898 : " The im- 
pression in French railway circles is that a railway 
through Yunnan will not pay expenses." ^® And the 
^railway did in fact not pay expenses for two reasons: 
Firstly, French trade in Southern China -remained in- 

17 See U. S. Consular Reports, 1912, No. 233, page 1488. 

18 See U. S. Consular Reports, 1912, No. 27, page 503. 

i» See " China," No. i, 1899, Vol. CIX, No. 459. Enclosure. 



FRANCE 133 

significant. Referring to the articles of the treaty of 
1885 by which preference was to be given to French 
trade and industries, Mr. Douglas says : " The bulk of 
the trade of the country has, in the natural order of 
things, fallen into the hands of the Chinese, the British, 
and the Germans." ^ All preferential treatment of 
French goods has not increased French trade materially. 
Secondly: The exorbitant charges drove foreign trade, 
away. To quote the Far Eastern Review: " As a nat- 
ural consequence traders are again taking to the older 
and cheaper river and caravan routes." ^^ 

So much for French penetration of Yunnan. French 
ambitions were also reaching towards railway enterprise 
in Kwangsi, Kwangtung, and Szechuan. Especially 
Szechuan was earmarked for railroad exploitation. M. 
Doumer considered that the Laokai- Yunnan fu line would 
only demonstrate its true value when continued to 
Chengtu via Chungking. And the French Minister 
actually secured from China the right to construct the 
Yunnan-Szechuan railway for French interests.^^ Thus 
France gained for the loss of her share in the Pukow-* 
Sinyang line. " At Chengtu she would link up with the 
' Great achievement ' of the Russo-Belgian combina- 
tion, thus clasping hands across China with her ally on 
the north, and also would have the control of a large 

20 See Douglas, op. cit., page 387. 

21 See " Far Eastern Review," Vol 9, page 167. 

22 Sec " Far Eastern Review," Vol. 10, page 304. 



134 FOREIGN FINANCIAL CONTROL IN CHINA 

section of the line eastwards to the Hupeh border as 
provided for in the Paris meetings of the Hukuang 
negotiations.** ^^ 

Aside from this line various other railways were 
planned and partly conceded by China.^* But only a few 
of these will stand a chance of eventual construction. 
The most important of the Franco-Russian-Belgian com- 
bination in which the French had a share of three-fifths 
of the capital, was the Peking-Hankow line.^' We have 
seen that the terms of this concession were as favorable 
to the Chinese as the terms of the British concessions. 
They were purely financial. 

The policy of France as far as the entire Far East 
^s concerned was dominated by France's European 
policy which stood under the sign of the Russo-French 
Entente. The French nation is the great creditor of 
•Russia and served as such, together with Belgium, as 
financial agent for Russian schemes in the Far East. 
The first joint financial enterprise was the Franco-Rus- 
sian Government Chino-Japanese War Indemnity Loan 
of 400,000,000 francs, contracted in 1895. The money 
-was almost exclusively subscribed in France. The first 
French railway loan contracted with Russian proclivities, 
as we have seen, was the Peking-Hankow line designed 

28 See ibidem. 

2* See Rockhill, op. cit., No. 59, " Kent Railway Enterprise in 
China," Chapter VXI. 
25 Sec " Far Eastern Review," Vol. 10, page 292. 



FRANCE 135 

to assist the achievement of the long cherished ambi- 
tion of France to join hands across China with her great 
northern ally, Russia. Another Franco-Russian com- 
bination was the Shansi Railway Loan, contracted by 
the Russo-Chinese Bank and floated in France.^* In 
1903, the French and Belgians financed the Kaifenfu- 
Honan Railway, with L 1,000,000, a supplementary loan 
of L640,ooo having been floated in 1907. Both these 
latter railways and the French Ta^jian-Chengting line • 
serve as feeders to the Peking-Hankow line. Another 
project of the Franco-Russian-Belgian combination is the, 
Limg-Tsing-U-Hai line from Lanchow to Tungchow. 
The possibility of an early construction of most of the 
recent projects is very remote. 

Finally French financiers participated with England, 
Germany, and America in the Four Power Negotiations, 
which will be a subject of investigation in Chapter VIII. 
France was to build the Kweichow-Chungking-Chengtu* 
section as an extension to the so-called Hukuang system. 
According to the Far Eastern Review: " The financial 
arrangements will be equally shared by the four groups, 
but the French will benefit principally in the matter of 
construction as no share of the construction of the sys- 
tem provided for by the Hukuang Agreement was 
allotted to them." ^t 

^ Sec " Far Eastern Review," Vol. 10, page 294. 
*^ See " Far Eastern Review," Vol. 9, page 305. 



136 FOREIGN FINANCIAL CONTROL IN CHINA 

In concluding this chapter we want to remark that 
France, in attainment of her political ends, finds con- 
siderable aid through a close cooperation between her 
foreign finance and her foreign policy. Or, as Bland 
expresses it : " In France, where cosmopolitan finance 
has attained its highest form of organization, the Gov- 
ernment has long since recognized the necessity for 
safeguarding the interests of French rentiers and at the 
same time for controlling capital as a source of national 
strength, by legislation which virtually prevents any 
French loan from going abroad without the full knowl- 
edge and approval of the French Government." ^® 

In this direction France finds herself only surpassed 
^by Germany and Japan, in which countries the coordina- 
tion between political and financial activities is even 
closer and is not directed towards aiding the political 
designs of an ally but is employed to strictly national 
ends. 

2« Sec Bland, op. cit., page 287. 



CHAPTER V 



GERMANY 



The rise of Germany on the Chinese horizon is of 
quite recent date. Suggestions for the acquisition of a 
port on the Chinese seaboard had been made by German 
traders on various occasions, and political relations have 
existed between the two countries since 1861. Treaties^ 
were concluded in this year and in 1880. But nothing 
was accomplished in the direction of gaining a foot-** 
hold in China until Kiaochau was occupied in 1897-98. 

The occupation of Kiaochau had been decided upon ii\. 
principle in 1896. Kent summarizes the events leading 
up to the occupation as follows : ^ '* In that year — 18^ *f^ 
— it will be remembered, Li Hung Chang paid his ^le- 
brated visit to Moscow, being present at the coronation 
festivities of the present Tsar. On his return he passed 
through Germany. It was suspected at the time that 
Russia had secured valuable rights in North China and 
Manchuria. On being pressed Li Hung Chang stead- 
fastly denied that this was so. Shortly after he had left 
the coimtry, however, the German Government received 

1 See Kent, op. cit., page 140. 

137 



138 FOREIGN FINANCIAL CONTROL IN CHINA 

certain information that their suspicions had been cor- 
rect. Thereupon Kiaochau, in anticipation of Russian 
•kirns, was mentally earmarked as a future territorial 
acquisition of Germany, who was badly in need of a 
naval station in Chinese waters, with the province of 
Shantung as their sphere of influence." 

The opportunity to act upon this decision arrived in 
November, 1897, when two German missionaries were 
murdered in the province of Shantung. Immediately the 
incident became known, a German squadron anchored 
off the harbor of Kiaochau and landed troops, which 
occupied the town of that name. After a series of 
negotiations, Germany demanded and achieved the lease 
of Kiaochau for the purpose of a naval base, supposedly 
in compensation and guarantee for the crime. The ces- 
sion found its expression in the convention of Peking on 
March 6, 1898:^ "With the intention of meeting the 
legitimate desire of His Majesty, the German Emperor, 
that Germany, like other powers, should hold a place 
on the Chinese coast for the repair and equipment of her 
ships, for the storage of materials and provisions for the 
same, and for other arrangements connected herewith, 
His Majesty the Emperor of China cedes to Germany 
on lease, provisionally for ninety-nine years, both sides 
of the entrance of the Bay of Kiaochau." 

* See Rockhill, op. cit., No. 8. See also Reich sanzeiger, April 
agth, 1898. 



<( 



ti 



GERMANY 139 

It may be said that to Germany, perhaps, more than 
to any other country, the future of China at that period 
was indifferent. While ready to commit herself to the 

Open t)oor " she also was prepared to benefit by the 

Sphere of Interest" policy or a direct partition of 
China almost without preference as to which prevailed. 
The important thing to her was not the policy, but the^ 
benefit. If China attempted reconstruction, German ji 
was ready to lend her assistance. A strong China to her 
would be able to act as counterpoise to Russia, Great 
Britain, France and Japan. Should, however, the long 
threatened break-up of China become imminent, Tsing- 
tau, the capital of Kiaochau, immediately became the 
kernel for a future German colony in the Far East. 
And Germany would have had her " place in the sun " 
in that part of the globe. 

This policy of foresight and precaution was summar- 
ized by Baron von Biilow shortly after the cession of 
Kiaochau: "Es ist von der Aufteilung von China 
gesprochen worden. Eine solche Aufteilung wiirde 
jedenf alls nicht von tms ausgegangen sein ; wir haben nur 
beizeiten dafiir gesorgt, dass wir, was auch kommen 
moge, nicht ganz leer ausgehen. Wann sich ein Eisen- 
bahnzug in Bewegung setzt hangt nicht immer von dem 
Belieben des Reisenden ab, wohl aber, dass er nicht den 
Anschluss versaumt. Den letzten beissen die Hunde. 
Wir wiinschen aber nicht — und das mochte ich mit 




I40 FOREIGN FINANCIAL CONTROL IN CHINA 

besonderem Nachdruck betonen — , dass es zu einer 
Aufteilung des Chinesischen Reiches komme. Ich 
glaube auch heute noch dass es zu einer solchen Aufteil- 
ung in absehbarer Zeit nicht kommen wird. Jedenfalls 
haben wir — und damit meine ich am besten sowohl die 
Griinde, wclche uns nach Kiaochau gefiihrt haben, als 
die Bedeutung von Kiaochau fiir uns zusammen-zuf assen 

— in Kiaochau eine strategische und politische Position 
gewonnen, die uns einen bestimmenden Einfluss auf die 
kiinftigen Geschicke Ostasicns sichert. Von diesem 
festcn Punkte aus konnen wir die weitcre Entwicklung 
der Dinge mit Ruhe und mit Gelassenheit abwarten. 
Wir haben eine so grosse Aktionssphare vor uns und so 
bedeutsame Aufgaben, dass wir andere Machte um die 
ihnen gemachten Zugestandnisse nicht zu beneiden 
brauchen. Die deutsche auswartige Politik wird, wie 
iiberall, so auch in Ostasien, ihren Weg ruhig, fest und 
friedlich zu verfolgen wissen. Den Storenfried werden 
wir nirgends spielen, das Aschenbrodel aber auch 
nicht/^ 3 

3 See Penzler, " Furst BiiloW^ Redcn," Berlin, 1907, page 30. An 
English text is given in " China," No. i, 1898, Vol. CV, No. (fj^ and 
reads as follows : " Mention has been made of the partition of 
\China. Such a partition will not be brought about by us at any 
\rate. All we have done is to provide that, come what may, we our- 
selves shall not go empty-handed. The traveler cannot decide when 
the train is to start, but he can make sure not to miss it when it 
does start. The devil takes the hindmost. But we do not desire, 

— and I beg to impress this point on you — we do not desire a par- 
tition of China, and I do not believe that there is an immediate 
prospect of such a division. But in any case (and here, I think, I 



GERMANY 141 

The German demands following the occupation of 
Kiaochau naturally included a railway concession as one 
of the principal objects of the occupation. The lease 
of Kiaochau and a section of the hinterland, signed on 
the 6th of March, 1898, was followed by a railway con- 
vention of the same date under which the following pro- 
visions are made : * "I. The Chinese Government 
sanctions the construction by Germany of two lines of 
railway in Shantung. The first will nm from Kiaochau 
and Tsinan-fu to the boundary of Shantung province via 
Weihsien, Tsinchow, Pashan, Tsechuen and Suiping. 
The second line will connect Kiaochau with Qiinchow, 
whence an extension will be constructed to Tsinian 
through Laiwuhsien. The construction of this extension 
shall not be begun tmtil the first part of the line, the 
main line, is completed, in order to give the Chinese an 
opportunity of connecting this line in the most advan- 
tageous manner with their own railway system. . . ." 

" II. In order to carry out the above mentioned rail- 



3 



can best resume the advantages secured to us by the occupation of 
the port, as well as the reasons which induced it) ; in any case, I 
say, we have secured in Kiaochau a strategical and political posi 
tion which assures us a decisive influence on the future of the Fa 
East. From this strong position we can look with complacency o 
the development of affairs. We have such a large sphere of action 
and such important tasks before us that we have no occasion to 
grudge other nations the concessions made them. German diplo- 
macy will pursue its path in the East as everywhere else — calmly, 
firmly, and peacefully. We will never play the part of mischief -J 
maker, nor will we play that of Cinderella." 
* See Rockhill, op. cit., No. 8. 



142 FOREIGN FINANCIAL CONTROL IN CHINA 

way work a Chino-German Company shall be formed, 
with branches at whatever places may be necessary, and 
in this Company both German and Chinese subjects shall 
be at liberty to invest money, if they so choose, and 
appoint directors for the management of the imdertak- 
ing,*' Article III provides among other things that " the 
object of constructing these lines is solely the develop- 
ment of commerce. In inaugurating a railway system 
in Shantung, Germany entertains no treacherous inten- 
tion towards China, and undertakes not to unlawfully 
seize any land in the province." In conformity with the 
spirit of this provision : " The Chinese Government 
binds itself in all cases where foreign assistance, in per- 
sons, capital or material, may be needed for any purpose 
whatever within the Province of Shantung to offer the 
said work or supplying of materials, in the first instance 
to German manufacturers and merchants engaged in 
undertakings of the kind in question/' 

« 

Following the acquisition of these rights Kiaochau 
was established as a commercial and strategic " point 
d'appui.'' The place was immediately declared open to 
foreign trade without distinction of nationality and an 
official report to the German Reichstag announced that 
no duties would be levied in the port of Kiaochau upon 
goods intended for consumption in German territory, ex- 
cepting the excise duty on opium.^ 

^ Sec Monthly summary of Commerce and Finance, U. S. Treas- 
ury Dept. Scries, 1899-1900, Nos. 321, 323 b., Dec, 1899. 



GERMANY 1 43 

Furthermore in accordance with above mentioned 
convention the Chancellor of the Empire on the first 
of June, 1899, granted the concession for the construction 
and management of a railway from Tsingtau via Weih- 
sien to Tsinan Fu, the provincial metropolis of Shantung, 
with a branch line to Poshan to a syndicate closely con- 
nected with the Deutsch Asiatische Bank and represent- 
ing a wide circle of German industries and mercantile 
interests. This company was organized on the 14th of 
June, 1899, as The Shantung Railway Co., with head- 
quarters in Berlin.® The capital was to be 54,000,000 
marks. 

The company was to be a German-Chinese Company.^ 
" Care is to be taken that Germans as well as Chinese 
may participate in the public subscription to the stock of 
the Company. More especially, shall subscriptions be 
opened in the suitable commercial centers of East Asia, 
and the amounts there subscribed shall receive proper 
consideration." 

" The election of the President of the Board of Direc- 
tors as well as the Chief Operating Official must be 
approved by the Imperial Government." 

" German material shall be used, as far as possible, in ^ 
the construction of the railways." 

" The railway is to be equipped in due time with roll- 
ing stock according to the requirements of traffic. The 

• Sec Rockhill, op. cit., No. 52. 



144 FOREIGN FINANCIAL CONTROL IN CHINA 

material used shall be, as far as possible, of German 
origin." 

Several articles provide for a control by the Governor 
of Kiaochau over the number of trains, fixing tariff and 
rates. Article VI authorizes the Imperial Government in 
case of such culpable action of the Company relative to 
one of the imposed obligations contained in the docu- 
ment, as should result in the railway's not being con- 
structed or operated in due course, " to take over itself 
or cause to be taken over by a third party, the construc- 
tion or extension of the railway and the organization or 
continuation of the traffic, all at the expense of the coni- 
pany." 

Article X gives the Company the option until the end 
of 1908 to construct a railway from Tsinan to Ichow and 
from Tsingtau to Ichow, thus forming a triangle of rail- 
ways covering all of the Province of Shantung. Article 
XI provides for a contribution from the yearly net profits 
^of the railway to be applied to the expenditures of the 
Government of Kiaochau, which contribution is to be 
estimated as follows: "If after the opening of the 
traffic of the railway from Tsingtau to Tsinan, the net 
earnings of the railway would permit the payment of 
a yearly dividend of more than 5 per cent, of the paid- 
up capital which is used in operating the railway, there 
shall be paid into the Government-funds of Kiaochau 
the twentieth part of any surplus over 5 to 7 per cent., 



GERMANY 145 

the tenth part of any surplus over 7 to 8 per cent, and 
so forth. ..." 

In Article XII " The Imperial Government reserves the 
right to purchase the railways to be constructed by the| 
company in accordance with this concession after the end 
of sixty years, calculated from the date of the grant of 
the concession. The Imperial Government further 
reserves the right to buy at the end of every five years, 
including a one year's previous notice, all establishments, 
rolling stock, appurtenances, inclusive of the reserve and 
renewal funds earned by the railway enterprise, upon 
payment of twenty-five times the amount of the average 
dividends paid during the last five years from its earn- 
ings, or, at least, however, the commercial value of the 
actual existing railway plants, workshops and rolling 
stock." 

The German railway line in Shantung, it may be finally 
remarked, is the only line of which China has not secured | 
the right, some time or another, to assume the sole con- 
trol. 

In addition to or better, based upon these specific rail- 
way rights, Grermany secured the dominating voice in the 
Province of Shantung with regard to employment o^ 
foreign capital, considering Shantung and adjacent terri- 
tories as her '' sphere of interest." The first step 
towards a recognition of the German sphere was the Grer-* 
man participation in the Tientsin-Chinkiang, respec- 



146 FOREIGN FINANCIAL CONTROL IN CHIKA 

tivcly — Pukow Railway following the German Minis- 
ter's claim that the Shantung section of this line should 
be German J The German sphere of interest found con- 
firmation by an arrangement between the British and 
German capitalists concerned. It estimated the Ger- 
man sphere of interest to be: The peninsula of Shan- 
tung and the Hoangho Valley with connection to Tientsin 
and Chengting, or other point of the Peking-Hankow 
line, in the south with connection to the Yangtze at 
Chinkiang or Nanking. The Hoangho Valley is under- 
• stood to be subject to the connecting lines in Shansi 
forming part of the British sphere of interest, and to 
the connecting line to the Yangtze Valley, also belong- 
ing to the said sphere of interest.® 

German control within the German sphere is based 
upon the railroad concession in Shantung. At first 
sight, the principal control provisions quoted above show 
a similarity of German control to that exercised by 
France and Russia. The concession was granted to the 
.German Government, which, in turn, designated leading 
German financial interests, united in the Deutsch- 
Asiatische Bank, to form a railroad company for the 
actual construction of railways within the sphere. Since 
this Company is a private concern, the control provisions 
are nominally financial. But the final supervision over 
traffic, tariff, and rates as well as the share in profits by 

^ See above, page 45. » See above, page 46. 



GERMANY 147 

the Government of Kiaochau, and the provision, that the 
line, under certain conditions, may or shall be taken over 
by the Imperial Government shows that German control 
is also political. Indeed, as Prince Biilow has suggested 
in his speech, the railroads extending from Kiaochau 
could be considered the first step towards German colon- 
ization in China, in case other Powers should set the 
example. Nevertheless German control differs in so far 
from Russian control, as Germany has taken no direct 
steps towards establishing a political influence such 
as was contemplated by Russia in Manchuria previous 
to the Russo-Japanese War. Neither has Germany, by 
rates or any other means, discriminated against the free* 
enjoyment of the treaty rights of other nationals within 
her sphere. 

Germany considered Shantung as a field for commer- 
cial exploitation — much as England considered her 
sphere in the Yangtze in the light of its economic possi- 
bilities. Both Powers, though alive to a possible parti- 
tion of China, had the political independence and terri- 
torial integrity of China in mind. German and English 
policy found its expression in a mutual Agreement, con-» 
eluded during the Boxer troubles, namely on Oct. i6th, 
1900. The agreement reads : ® 

I. " It is a matter of joint and permanent international 
interest that the ports on the rivers and littoral of China 

• See Rockhill, op. cit, No. 14. 



148 FOREIGN FINANCIAL CONTROL IN CHINA 

should remain free and open to trade and to every other 
legitimate form of economic activity for the nationals 
of all countries without distinction; and the two Gov- 
ernments agree on their part to uphold the same for all 
Chinese territory as far as they can exercise influence. 

2. " Her Britannic Majesty's Government and the 
Imperial German Government will not, on their part, 

^ make use of the present complication to obtain for them- 
selves any territorial advantages in Chinese dominions, 
and will direct their policy towards maintaining un- 
diminished the territorial condition of the Chinese Em- 
pire. 

3. "In case of another Power making use of the com- 
plications in China in order to obtain under any form 
whatever such territorial advantages, the two contracting 
Parties reserve to themselves to come to a preliminary 
understanding as to the eventual steps to be taken for the 
protection of their own interests in China." 

To Germany Kiaochau was the economic key to Shan- 
tung and Shantung the economic key to northern China. 
On the completion of the Tsingtau-Tsinanfu Railway 
Germany endeavored to derive the full pecuniary ad- 
vantages of her monopoly. To quote the Far Eastern 
Review: " When Tientsin is closed by ice during the 
winter months the export trade of North China is 
paralyzed, with the exception of the small volume which 
finds its way out of the harbor of Chinwangtao. A 



*^ 



GERMANY 149 

glance at the map will show that much of the trade now 
enjoyed by Tientsin, could be diverted to Tsingtao with . 
considerable advantage to a vast section of North China, 
and consequent profit to Germany. The construction of 
any line or lines connecting the Northern or German 
Section of the Tientsin-Pukow with the Peking-Hankow 
Railway, would create a revolution in the old established 
channels of trade, and instead of flowing northwards to 
Peking and then down again to Tientsin the products of 
Southern Chihli, Shansi, Shensi and Honan would fol- 
low the shortest and most direct route to the sea, over 
the German lines to Tsingtao." German diplomacy has 
been keenly alive to this fact, and the German Minister 
has on several occasions approached the Chinese Govern- 
ment to secure a concession to construct a line to con- 
nect Chengtingfu with Techow and Kaifeng with Yen- 
chow. According to Mr. P. C. Kent, in his valuable 
book on " Railway Enterprise in China *' : " the German 
Minister has only succeeded in arriving at an under- 
standing with the Chinese Government to the effect that 
in the event of the Chinese Government deciding upon 
the construction of these lines and requiring the assist- 
ance of foreign capital, German capitalists will be 
allowed the first refusal of the Concession. A glance at 
the map is sufficient to indicate the commercial import- 
ance of these railways to Shantung and Tsingtao. . . . 
With the thoroughness characterizing her foreign trade 



ISO FOREIGN FINANCIAL CONTROL IN CHINA 

policy, Germany has carefully protected and insured her 
position. in Shantung, and as the construction of these 
lines will ultimately become imperative for the develop- 
ment of China, she may well afford to bide her time with 
the calm assurance that her • plans will mature. Her 
position is further safeguarded by the terms of the 
Tientsin-Pukow Loan Agreement, Qause 19 of which 
reads : Branch lines in connection with the railway line 
mentioned in this Agreement may be built by the Im- 
perial Chinese Government with funds at their disposal 
from Chinese sources, if thought advisable, and if 
foreign capital is required preference will be given the 
Syndicate." ^« 

In 19 1 3 Germany made another step forward. On , 
December 31st of that year, a preliminary agreement 

If was signed between China and Germany for the con- 
struction of two new railways in Shantung province, one 
from Kaomi, west of Tsingtau, to Ichowfu and Han- 
chuang, on the railway line connecting Pukow with 
Tientsin, and the other from Tsinanfu to some point 
on the Peking-Hankow Railway. In the final agree- 

^ment the line from Kaomi was to run to Hsuchowfu 
and to form a junction with the Tientsin-Pukow Rail- 
road. " Under the Kiaochow Convention of March 6, 
\1898, China conceded Germany the right to build rail- 
ways in Shantung under German Company laws, and 

i<> See " Far Eastern Review," Vol. 9, page 156. 



GERMANY 15 1 

while the railroad from the port of Tsingtau to Tsinanfu 
was so constructed, Germany decided not to follow the 
same practice in the future, agreeing to forego the 
privileges in that direction and permitting China to build 
the lines upon conditions similar to those under which 
other railroads have been constructed.^^ These new 
lines then weri^ to,, be Chinese-state-owned, but German 
capital and materials were to be employed in their con- 
struction and the Chief Engineer and the General 
Manager were to be German subjects." A construction 
of these lines in the near future is of course very un- 
likely. 

The comparatively large and speedy successes of Ger- 
man fin)Mice^ii;iv>CHina. were, last not least, due to the* 
forward methods of tne German bankers. German 
finance and industry are more highly organized and* 
coordinated to the specific purpose of extending national 
interests abroad than is the case with any other power 
in the world. >And at the same time German diplomacy, 
in cooperation^ .with Genftan industry and finance, is 
striving to extend and promote the trade secured by the 
foresight of German business men. " Not only does 
the German Foreign Office keep in touch with the move- 
ments of its financiers abroad . . . but it has 
come to pass, as part of a regularly organized system, 

11 See "Far Eastern Review," Vol. 11, page 18. See also Vol. 10 
Dec., 1913. 



152 FOREIGN FINANCIAL CONTROL IN CHINA 

that all the great financial industries are directly asso- 
ciated with groups of manufacturers and industrialists, 
so that the whole force of politics, industries and finance 
moves forward, along predetermined lines, to a common 
goal." ^^ This goal is the extension of markets for Ger- 
man goods and the purpose of German foreign invest- 
ment within such markets is to help home enterprise. 

That the participation of German banks in industrial 
enterprises and in capital investments abroad has to be 
concentrated upon exclusively German success is main- 
tained by all the foremost German authorities on finance. 
Riesser says : ^^ '* Internationale Geschaftsbeziehungen 
tmd international Emissionen diirfen immer nur Mittel 
zur Erreichung nationaler Ziele sein und miissen sich in 
den Dienst der nationalen Arbeit stellen." And in Wal- 
tershausen's book " Kapitalsanlagen im Ausland " we 
find the following passages : ^* " Fiir die Zukunf t der 
deutschen Volkswirtschaft ist es von Wichtigkeit, dass 
der Kapitalsexport planmassig im nationalen Sinn ge- 
leitet wird. . . ." " Die Auslandsbanken, obwohl Er- 
werbsinstitute, iibemehmen mit ihrer Tatigkeit national- 
wirtschaftliche Funktionen zugunsten des Waren und 
Kapitalsexports.*' And in order to illustrate that a 

" See Bland, op. cit, page 287. See also Withers, op. cit, page 
109. 

1' See J. Riesser, " Die deutschen Grossbanken," page 293. 

1* See Sartorius von Waltershausen, " Kapitalsanlagen im Aus- 
land," page 293. 



GERMANY 153 

monarchical form of Government like the German is, 
according to German opinion, best fitted for carrying 
out a broad national foreign policy we quote a passage 
from Treitschke : ^^ " Der Konig kann sehr viel gen- 
auer beurteilen, wie es in der Welt draussen wirklich 
steht, als der einzelne Untertan oder auch eine republi- 
canische Parteiregierung. Eine weit in die Zukunft 
rechnende Politik wird nur dem moglich sein, der wirk- 
lich in Zentrum steht." 

It was then to the specific purpose of preserving and 
expanding markets for German industry that a number 
of leading financial institutes as early as 1889 founded 
the Deutsch-Asiatische Bank, which we have mentioned 
before. The formation of a group or syndicate for 
Asiatic business in 1890 was the natural consequence of* 
the establishment of the bank.^® The purpose of the 
syndicate was to be concerted underwriting of state and* 
provincial and railway loans in China, Japan and Korea 
and the establishment of railroad and mining companies. 
The spirit that animated the syndicate may be illustrated 
by a further quotation of Riesser : " Die Ubemahme 
von Anleihen fiir China wurde ein Kampfobject zwischen 
alien den Staaten, die da wussten, dass in erster Linie 
der financielle Einfluss dem politischen die Wege bahnt." 

One of the first greater successes of the syndicate, 

i« See Treitschke, " Politik/' II, page 55. 
^^ See Riesser, op. cit., page 403. 



154 FOREIGN FINANCIAL CONTROL IN CHINA 

represented by the Deutsch-Asiatische Bank was the 
cooperation with the British Hongkong and Shanghai 
Bank in contracting one-half of the Chino-Japanese War 
indemnity loan of 1896 and 1898.^^ The two banks 
furthermore cooperated in 1905 in the Exchange Adjust- 
Vnent of the Boxer Indemnity (being Li,ooo,ooo), in 
1908 and 1909, in contracting the Imperial Chinese Gov- 
ernment Tientsin-Pukow Railway Loan totaling L5,ooo,- 
000 of which the Deutsch-Asiatische Bank issued 
L13, 1 50,000 — and finally in 1910 in the Tientsin-Pukow 
Railway Supplementary Loan of L4,8oo,ooo.^® The 
participation of the Syndicate in international loan 
negotiations will be dealt with in the respective chapter. 
Though the means of Germany deviate materially 
from Anglo-Saxon means and therefore have even before 
the war provoked misunderstandings, there is neverthe- 
less to be found a frequent financial cooperation between 
the two countries. EVen as late as the spring of 1914, 
English-German cooperation in certain railway enter- 
prises was found desirable. The latest German attempt 
to connect the Tientsin-Pukow Railway with the Peking- 
Hankow Railway was made by a German industrial or- 
ganization apparently independent of the Deutsch- 
Asiatische Bank. Referring to this organization the 
Far Eastern Review remarks : " The scheme is doubt- 
less intended to comprise all the most important German 

17 See Chapter VIII. i« See Chapter VII. 



GERMANY 155 

industrial concerns, and there is some reason to suppose 
that it is desired to secure English cooperation. The 
theory that Germany and England are now natural 
partners in Chinese business is being systematically 
propagated." ^® 

British-German cooperation, however, has been shat- 
tered through the present war. The elimination of Ger- 
many's interests and " control " in China and the ap- * 
pearance of Japan as the — at least for the time being 
— arbiter of Eastern Asia has changed the whole aspect 
of the Far Eastern question. 

i» Sec " Far Eastern Review," Vol. XI, page 98. 



CHAPTER VI 



JAPAN 



The advance of Russia into Eastern Asia had for 
many years given rise to anxiety on the part of Japan, 
•whose island home Hes so close to the shores of the neigh- 
boring continent that the possession of the Asiatic coast 
line by a strong Western Power would, it was recognized, 
be a standing menace to the independence of the Empire. 
" In 1873 ^h^ Iwakura embassy had returned from 
Europe deeply impressed by the power and activity of 
the Western world, and especially by the aggressive 
designs of Russia. A memorandum drawn up by Okubo 
Toshimichi declared that Russia, always pressing south- 
wards, is the chief peril for Japan. It is not surprising, 
then, that the safeguarding of Japanese interests in 
Korea became the first aim of Japanese policy." ^ 
Japan's very safety demanded that neither of her great 

^neighbors, Russia and China, should obtain an undue 
share of influence in the Far East. It was therefore 
with some alarm that in 1891 Japan learned that the 

' Tsar's government had determined to construct a line 

1 See Douglas, op. cit., pages 191, 192. 

iS6 



JAPAN 157 

of railway through Siberia to connect European Russia 
with Vladivostok. As a first countermove, Japan, upon 
realizing the designs of Russian policy and the weakness* 
of the Chinese Government, sought to establish Korea 
as an independent state, the latter then being under 
Chinese suzerainty. But while it was in Japan's interest 
to strengthen and reform Korea, it was to China's in- 
terest to keep the Korean government corrupt and weak 
and to withstand Japanese aspirations. 

The opening of the Korean question, then, marked 
the beginning of a new era of Chino-Japanese rela- * 
tions. In this period there are three great events which 
may serve as landmarks, namely the Chino-Japanese War 
of 1894-95, the Russo-Japanese War of 1904-05, and 
Japan's participation in the present world war. 

Early in 1894, a rebellion broke out in Korea, Japan- 
ese troops occupied Seoul , Korea renounced Chinese » 
suzerainty, all of which finally resulted in the Chino- 
Japanese War, at the very beginning of which Japan 
concluded a treaty of alliance with Korea agajnst China.^ 
This war may be said to be a direct outcome of Japan's 
resolution to reconstruct Eastern politics on a modern 
basis and of China's persistence in the old methods. Its 
result was a clear evidence of the superiority of the 
modern methods which Japan had adopted. 

The effects of the war upon the situation in the Orient 

2 See Rockhill, op. cit., page 429. 



IS8 FOREIGN FINANCIAL CONTROL IN CHINA 

were far-reaching. Japan^s rise as a modem nation in 
•the estimate of the world may be said to date from this 
time, especially since the same year saw a treaty of com- 
merce and navigation between England and Japan, which 
serves as the Magna Charta of Japan in regard to her 
dealings with foreign states. 

The conclusion of peace by the treaty of Shimonoseki 
on the 17th of April, 1895,^ was received with universal 
enthusiasm throughout Japan. It was reaHzed that this 
treaty, coming after the trimphant victories which had 
everywhere distinguished Japanese arms, must place the 
country in the front rank of nations; and the extension 
of territory awarded by the cession of the Liaotung pen- 
insula and Formosa served to flatter the pride of the 
people. But when, a week later, the joint protest against 
the occupation of the Liaotung peninsula, or any other 
portion of the mainland of China, made by Russia, 
France and Germany, reached Japan, the people evinced 
the utmost indignation. It was realized, however, that 
it would be hopeless to enter on a contest with three 
first-class Powers, and, after a moment's hesitation, the 
government decided to renounce the Liaotung peninsula, 
and demand an additional indemnity of seven and a half 
million pounds sterling in its place. These terms were 
agreed to by China. 

The lesson was not lost on the Japanese ; the humilia- 

3 See Rockhill, op. cit., page 14. 



JAPAN 159 

tion to which they had been subjected, left an indelible 
impression upon their minds; and they at once deter- 
mined so to strengthen their position as to enable them 
to hold their own on all future occasions. They set on 
foot an elaborate scheme of naval and military expan- 
sion which it was hoped would yield the expected results 
within a few years. 

If the enforced surrender of the Liaotung peninsula 
left in the minds of the Japanese a burning sense of 
wrong, subsequent events forced upon them the convic- 
tion that, sooner or later, Japan would have to enter on 
a life-and-death struggle with the Muscovite power. 
Further machinations of Russia in Korea led Japan to 
come to agreements and to make arrangements relative 
to the independence of Korea and neutral rights.'* Of 
still greater importance was the circumstance that the ' 
absorption of Manchuria by Russia had begun. The 
greatest event in this direction — and of far reaching 
consequences — was the taking of Port Arthur; the 
manner in which Russia obtained possession has been 
already described. 

The news of the lease produced a wild excitement in 
Japan. Not only had Russia ousted Japan by the force 
of specious pleas, but in direct conflict with those pleas 
she had taken possession of one of the most hardly-won 
prizes of the late war. The nation was stirred to its 

* See Rockhill, op. cit., Nos. 67, 68, 69. 



l6o FOREIGN FINANCIAL CONTROL IN CHINA 

depths; and it was only by the wise and weighty pres- 
sure which was brought to bear by the Elder Statesmen 
and the Government that war was averted. Here again 
Japan showed a great self-control. Her only answer 

^to Europe's aggression on Chinese territories — of the 
" battle of concessions " — was a demand on China that 
the province of Fuh-kien opposite Formosa shall not be 
alienated to any other government.*^ 

In the troublous times to follow Japan had further 
occasion to show growing strength, vigor and thorough- 
ness. This was especially the case during the Boxer 
movement, the immediate consequence of which was to 
see Japan's position in regard to China vastly improved. 
The most important thing that contributed to this state 

*of affairs was the admirable behavior of the Japanese 
troops during the occupation of Peking, by which Japan 
also gained Europe's admiration. 

To enumerate further successes of Japan in Korea 
against Russian aspirations and to go into detail as to 
the immediate causes of the then impending war is here 
of little interest. The main point is that from the day 

• on which Japan was forced to forego the cession of 
the Liaotung peninsula as part of the hard-won spoils 
of the China war, she had steadfastly kept in view the 
prospect of one day having to fight Russia for her na- 
tional existence. In the nine years which had elapsed 

• Sec Rockhill, op. cit, No. 26. 



JAPAN • i6i 

between the last incident of the Qiinese War she had 
made every preparation that human foresight and energy 
could ensure to fit herself for the conflict which her 
statesmen felt to be inevitable. Consequently the war 
was a success. 

Before treating the most important and far reaching 
consequences of the war and the events following it, 
events which are of particular interest to our investiga- 
tion, we have to tmderstand the motives and forces which 
have been at the root of the foreign policy of Japan 
and all the great changes which have taken place. At 
the outset we cannot doubt that the intense feeling of 
patriotism among the Japanese and the determination 
to make their cotmtry stand in a position of equality 
with foreign nations were the most important factors 
in the movement which has profoundly changed all the 
conditions of Japan. The great national mission of 
Japan is, according to Count Okirnia,® " to harmonize 
Eastern and Western civilizations in order to help bring 
about the imification of the world, to effect a right har- 
mony between its own and the outside civilization." 
The main ideas with which the Japanese started when 
they decided to adopt Western methods were embodied 
in the principles proclaimed on oath by the late Emperor 
on the occasion of his accession to the throne on March 
14, 1 868, the principal passage of which reads as fol- 

• Naoichi Masaoka, " Japan's Message to America." 



1 62 FOREIGN FINANCIAL CONTROL IN CHINA 

lows:^ "All purposeless precedents and useless cus- 
toms being discarded, justice and righteousness shall be 
the guide of all actions. . . . Knowledge and learning 
shall be sought after throughout the whole world, in 
order that the status of the Empire of Japan may be 
raised ever higher and higher." 

Behind the patriotic motives there are strong economic 
and political forces which have influenced the foreign 
policy of Japan. The rapid increase in population and 
the necessity for outlets not only for the surplus popula- 
tion but also for the surplus industrial products, has 
been forcing Japanese statesmen to consider the prob- 
lems involved, and like the statesmen of other countries 
they have sought them in the settlement of numbers of 
their people in foreign countries and in an extension of 
their foreign markets. The development of industry in 
Japan is making the country directly dependent on the 
produce of other countries for the food of its population 
and on raw materials. 

Japan's difficulties were increased through the finan- 
cial situation. Baron Yamamoto, minister of finance, 
several years ago warned the nation as follows : ® "As 
we are all aware, this country bears a heavy burden of 
foreign loans and has to pay yearly a large amount of 
money both in principal and interest. To relieve this 

7 Henry Dyer, " Dai Nippon," page 27. 

8 Whefpley, " The Trade of the World," page 243. 



JAPAN 163 

situation, means to be resorted to must be those of the 
development of export trade, while it is equally import- 
ant to check the growth of all that tends to increase the 
outflow of specie and to make efforts to lighten the bur- 
den of national debt." 

The whole industrial situation in Japan up to late 
yea^s was critical. Whelpley remarks : ® " The dissem- 
ination of Western ideas and the increasing cost of liv- 
ing are bringing about a state of restlessness and dis- 
satisfaction potent with serious possibilities. Industrial 
unrest, strengthened by the increasing spirit of individual 
freedom may ultimately prove a serious check to the pace 
which now marks the progress of Japanese foreign trade. 
Increased wages, shorter hours of labor and even the 
most elementary protection of women and children now 
working in factories will threaten the present advantage 
of the Japanese in the cost of production." 

Reasons such as enumerated make it clear that Japan 
found it difficult to compete with European and Ameri-, 
can goods and all of the circumstances referred to force 
Japan to look towards the mainland of Eastern Asia as 
the principal outlet of her goods and surplus population, 
and as the source of raw materials. The most desirable 
outlets from a geographical position, sparse-peopled ter-* 
ritory and undeveloped resources are Korea and Man- 
churia, a part of Mongolia, and probably Eastern Siberia, 

• Whelpley, op. cit, page 253 ff. 



1 64 FOREIGN FINANCIAL CONTROL IN CHINA 

while China proper offers the multitude of people as a 
basis for a wide market. 

All of the circumstances mentioned above furthermore 
may be said to be responsible for the tendency of Japan 
*in the earlier years of her occupation to monopolize such 
parts of Manchuria as she held in control. They also 
are responsible for the methods employed by Japan, in 
those regions, and for the measures taken. 

Of great significance in this connection is a statement 
of Baron Makino, Minister of Agriculture and Com- 
merce : ^^ " China has people, and population is what 
makes trade. No other country in the world offers so 
vast a field for trade. With the growth of education 
and the development of material progress possibilities 
of commercial enterprise in China are simply unlimited. 
The anxiety of the powers to enter into more and more 
intimate trade and political relations with China cannot 
but excite intense interest in Japan; for China is our 
nearest neighbor, our best customer; and our commer- 
cial and political relations with that country are superior 
to those of any other nation. ... It is true that Japan 
enjoys a profitable trade with many countries of the 
West; . . . but this occidental trade at its best is diffi- 
cult to handle with any satisfactory degree of achieve- 
ment; for it is always more difficult to deal with highly 
developed commercial nations than with those less ad- 

1® Sec Whelplcy, op. cit., page 247 fF. 



JAPAN 1 65 

vanced in modern progress. Trade with peoples of 
lower social standards is always more easy and profit- 
able. . . . To-day the mind of Japan is all toward China, 
as the commercial hope of our future, not to say any- 
thing of our geographical and racial advantages with- 
that country. It is our ambition to be to the East what 
Great Britain is to the West. ... It is not too much to 
say that a great part of our hope for future financial 
rehabilitation in Japan depends upon how we can fur- 
ther develop trade with China.'' 

It is now our purpose to investigate measures taken 
and methods used by the Japanese in their relations with 
China in accordance with the task set in the introduction. 
The terms of the Treaty of Portsmouth in 1905 gave 
an inadequate result to Japan for all her costly sacri- 
fices. Japan had to take the entire financial burden on 
her own shoulders, not being able to force Russia to 
pay her an indemnity. But on the other hand, Russia 
ceded to Japan her leasehold rights in the peninsula of 
Liaotung including the fortress of Port Arthur and in 
Article VI, the ownership of the southern section of the 
Manchurian Railway, from Port Arthur to Kwang- 
chengtze, and all its branches, " together with all rights, 
privileges, and properties appertaining thereto in that 
region, as well as all coal mines in the said region, be- 
longing to or worked for the benefit of the railway." ^^ 

11 " British and Foreign State Papers," Vol. 98, page 735- 



l66 FOREIGN FINANCIAL CONTROL IN CHINA 

In Article VII " Japan and Russia engage to exploit their 
respective railways in Manchuria exclusively for com- 
mercial and industrial purposes and in no wise for 
strategic purposes/' 

The arrangement was subject to the consent of the Im- 
perial Chinese Government, which was promptly forth- 
coming in a convention of Dec. 22^ 1905.^* In Article 
I the Imperial Chinese Government consents to the 
transfers and assignment made by Russia to Japan, while 
in Article II " The Inlperial Japanese Government en- 
gages that in regard to the leased territory as well as 
in the matter of railway construction and exploitation, 
they will, so far as circumstances permit, conform to 
the original agreements concluded between China and 
Russia/' In Article VI, '* The Imperial Chinese Govern- 
^^ment agrees that Japan has the right to maintain and 
work the military railway line constructed between An- 
tung and Mukden and to improve the said line so as to 
make it fit for the conveyance of commercial and indus- 
trial goods of all nations." 

With the transfer to Japan of Russia's railway in- 
terests in South Manchuria, the policy of acquiring 
influence by economic means was adopted by Japan as 
the last of the Powers and was practiced with great 
skill. The exploitation of South Manchuria was not 
undertaken by the Japanese Government directly but 

" " British and Foreign State Papers,'* Vol. 98, page 740. 



JAPAN 167 

by a powerful joint-stock company in which the 
Government is the largest shareholder. On June i, 
1906, the South Manchurian Railway Company wast 
promulgated for the purpose of operating the railway 
between Dalny and Changchtm, including branch lines, 
the line between Antung and Mukden, and the rich coal 
mines of Fushun ani^Yentai.^^ 

•The " authorized capital " of the concern was Yen 
200,000,000, of which the Government held Yen • 
100,000,000. Of the rest only Yen 20,000,000 were^ 
subscribed by and issued to the public.^* The Govern- 
ment shares represent the value of the lines as agreed 
upon when the company took them over, together with 
the Yentai and Fushun collieries. The railroad is 
actually nm by the proceeds of Li 2,000,000, of deben-* 
tures issued in London and mostly held by British in- 
vestors. These debentures are guaranteed, both as to^ 
Capital and interest, by the Japanese Government. The 
Japanese Government also guaranteed the shareholders j 
six per cent, on the capital, while the Company pledged 
itself to repay the Government as soon as the railway 
should begin to yield sufficient revenue. 

The South Manchurian Railway Company was for- 
^nally established on Nov. 13, 1906, with Baron S. Goto 

18 For the status of the South Manchurian Railway, see Harrison, 
op. cit, pages 258 ff. See also " Far Eastern Review," Vol. 11, pages 
38s ff. 

1* See " China Year Book, 1914,*' Qiapter on Communications. 



l68 FOREIGN FINANCIAL CONTROL IN CHINA 

as President, and the railways and mines were taken over 
by this company from the Japanese Government in the 
spring of 1907. The new company engages largely in 
enterprises other than those of a public carrier. The 

♦scope of the new undertaking indeed was large: The 
company runs a regular service of ships between Dairen 
and Shanghai, and owns the fleet of the Dairen Steam- 
ship Company, coasting in the Gulf of Pechili. The 

^Fushun Colliery, about twenty-five miles east of Muk- 
den, as well as coal fields and mines at various other 
j)laces, are under its control. It constructed the great 
harbor works at Dairen and owns the wharves and 
shipping facilities of Port Arthur. It provides electric 
current for many towns and gas as well, where required. 
It has large hotels at all these places. The Japanese 
furthermore encouraged industries and brought new 
ones. They have settled in the country by large num- 
bers, and to-day it is estimated that there are 100,000 
Japanese in South Manchuria. They, last not least, keep 
an army in the country, the so-called " railroad guards." 
For in a supplementary agreement to the Portsmouth 
Treaty " The High Contracting Parties reserve to them- 
selves the right to maintain guards to protect their re- 
spective railway lines in Manchuria. The number of 
such guards shall not exceed fifteen per kilometer, and 
within that maximum number the Commanders of the 
Japanese and Russian armies shall, by common accord. 



JAPAN 169 

fix the number of such guards to be employed, as small 
as possible, having in view the actual requirements." ^* 

Full advantage of this clause has been taken by both 
parties and in the absence of accurate figures the length 
of line controlled may be taken as the measure of the 
local military strength. The 700 miles of the South Man- 
churian Railway system together with other substantial 
concessions aggregating to over one thousand miles en- 
able Japan to keep a formidable army in the country. 

Apart from the system itself, the Company owns from 
46,000 to 50,000 acres of land, capable of very profit-* 
able cultivation, the so-called " zones." ^® About these 
zones Harrison remarks : ^^ " On receiving from the 
Russians the expropriated lands within the railway zone, • 
with numerous buildings, the Japanese set aside a cer- 
tain proportion for the needs of the railway, and trans- 
ferred the remainder to the settlement administrations 
to be made use of." According to Harrison " the*" 
settlement chief, or socho, superintends the lands and 
buildings of his division, looks after scholastic, medical, 
and sanitary matters, and is responsible for proper pre- 
cautions against accidents from fire or other cause. He 
is also responsible for the preparation of the annual 
estimates and accounts of revenue and expenditure. To 

15 See " British and Foreign State Papers," Vol. 98, page 739. 
i« See Lawton, "Empires of the Far East," Vol. II, pages 1166 ff. 
IT See Harrison, op. cit., page 256. See whole Chapter XIV of 
Harrison. 



I/O FOREIGN FINANCIAL CONTROL IN CHINA 

this official also belong the imposition of taxes, super- 
vision of the development of trade and industry in his 
division, and inspection of public property. . . . All the 
orders and arrangements of the socho must be submitted 
to the Chief Director of the railway, by whom they must 
be sanctioned/' 

In addition to this and as an additional precaution 
against hasty legislation there exist special committees 
in several places, subordinate to the Chief of the settle- 
ment, "but nevertheless at liberty to complain to the 
Chief Director of the railway against what, in their 
opinion, constitutes illegal action on the part of the 
above official." " The subjects of every nationality are 
^free to settle in the railway zone, but they must con- 
form to all the rules and regulations of the railway com- 
pany, and must also pay a specific tax for public pur- 
poses/' In the zones the railway builds schools, main- 
stains hospitals, provides for medical and technical col- 
lege training, creates townships, erects public buildings, 
makes roads, constructs telegraph lines and installs tele- 
phones. 

In short, this great and most efficient concern exer- 
cises not only commercial privileges but also administra- 
tive functions. The company rims the whole railway 
• system, including all lands connected with it, for the 
Japanese Government; the South Manchurian Railway 
Company is merely another name for the Japanese Gov- 



JAPAN 171 

cmmait. The Japanese Government owns four-fifths 
of the paid-up capital; the bonds are guaranteed by the 
Government; and the railway is under supervision of 
the Japanese Railway Board, which controls all the 
nationalized railways of Japan. ^® And through the. 
"guards," the company works hand in hand with the 
military authorities. While Chinese sovereignty is 
respected within the concession, the railway with all its 
lands constitutes an imperium in imperio. Not only do 
the Japanese enjoy immunity from taxation by the • 
Qiinese authorities but the preservation of law and 
order in the concession is intrusted to the railway com- 
pany, and the Japanese Government enjoys a correspond- 
ingly large influence within the whole of the Japanese 
Sphere of Interest, i.e., all of South Manchuria. 

Japanese control in South Manchuria, then, as based 
upon the railway concession inherited from Russia, is 
much similar to that exercised by Russia in all Man- 
churia previous to the Russo-Japanese War, although 
the South Manchurian Railway Company is much more 
of a commercial enterprise than the Chinese Eastern Rail- 
way. 

In order to firmly establish Japanese commerce on 
a definite basis Millard informs us ^® that " the Gov- 
ernment called some prominent financiers and merchants 



18 See Harrison, op. cit., page 279. 
!• Seie Millard, op cit., page 206. 



172 FOREIGN FINANCIAL CONTROL IN CHINA 

into consultation, and a somewhat extraordinary pro- 
gram was advanced. For purpose of directing, under 
Jht Government, an energetic campaign to monopolize 
the foreign trade of Manchuria, what is known as the 
Manchurian Export Guild was formed in 1906. It in- 
cluded most of the greater commercial guilds in Japan, 
such as the Osaka Boseki, Mige Boseki, Kanakin Seis- 
hoku, Tenima Ormono, and the Okayama Boseki. It 
. was announced that Mitsui and Company were to act as 
general agents for the guilds and the Government, 
through its branches in Manchuria; and the Yokohama 
Specie Bank, the Government's fiscal agent in Manchuria, 
.was to lend its cooperation." Foreign traders thus were 
confronted by the competition of the Japanese mer- 
chants, financiers and Government combined. A great 
aid to Japan's trade was, as the Far Eastern Review 
remarks, " the economic paternalism of the Japanese 
Government, which takes the shape of subsidies to 
steamship lines and the provision of cheap capital to 
merchants. Assistance is also freely given to the Japan- 
* ese firms by the Japanese semi-official bank in Man- 
churia." ^^ 

In the matter of railways, Japan also took advantage 
of the post-bellum situation in order to secure substan- 
tial advantages for herself or at least to obstruct designs 
of outsiders, contrary to her interests. A significant 

"©See "Far Eastern Review," Vol. 11, page 488. 



JAPAN 173 

and interesting case is offered by the Hsinmintung- 

Fakumen project. In November, 1907, the Chinese Gov- 

• 

emment made a contract with the British firm of Paul- 
ing and Co. for the construction of an extension of the 
Imperial Railways of Northern China from the north- 
em terminus Hsinmintung to Fakumen,^^ fifty miles 
in length. When the matter became known at Tokyo, # 
Japan objected to further extension of this line on the 
grotmd that it would injure the South Manchurian Rail- 
way. The Far Eastern Review remarks to this : '* The 
Peking Agreement of Dec. 22, 1905, entered into be- • 
tween China and Japan contained a secret clause which 
boimd China not to construct prior to the recovery of 
the South Manchurian Railway any main line in the 
neighborhood of and parallel to that railway or any 
branch line which might be prejudicial to its interests. 
This self-denying claim, in which China in effect sur- 
rendered her sovereign rights to construct railways in 
Manchuria, was made public and successfully invoked 
by the Japanese Government to obstruct and cause the 
abandonment of the projected Fakumen Railroad, a 
branch line of the Northern Railways from Hsinmintung 
to the market town of Fakumen. China had entered 
into a signed agreement with a British financial corpora- 
tion to supply the funds and contracted with a British 
construction firm to build the line. China's undoubted 

«i See " Far Eastern Review," Vol. 11, page 383. 



174 FOREIGN FINANCIAL CONTROL IN CHINA 

intention was to test the strength of the secret agree- 
ment referred to, and if Japan acknowledged her right 
to build the Fakumen extensions, the line was to be 
carried on northwards towards Changchun." ^* The 
final triumph of Japanese diplomacy found its expression 
in Article I of the Sino-Japanese Agreement of Sept. 
4, 1909, referring to Manchuria: ** The Government of 
China engages that in the event of its imdertaking to 
construct a railway between Hsimintun and Fakumen, it 
shall arrange previously with the Government of 
Japan." 23 

The British- American project from Chinchow to 

*Aigun met with a similar fate owing to joint Russo- 
Japanese representations. Other objects of Japanese 

jpolicy were the Hsinmintung-Mukden and Antung Muk- 
den railroads. 2^ During the war Japan had constructed 

^ a narrow gauge railway between Hsinmintung and Muk- 

^den. This line was transferred to China in 1908. The 
Japanese, however, knew how to retain control over the 
line. The Antung Mukden railroad likewise was con- 
structed during the war by the Japanese army for mili- 
tary purposes, and Japan insisted after the war, that she 
be permitted to reconstruct and operate the line as a 
branch of the South Manchurian Railway. The respec- 
tive clause VI in the Sino-Japanese Peking Treaty reads 

22 " Far Eastern Review," Vol. 9, page 153. 

28 See " British and Foreign State Papers," Vol. 102, page 393. 

2* See "Far Eastern Review," Vol. 11, page 383. 



JAPAN 175 

as follows : " The Imperial Chinese Government agrees 
that Japan has the right to maintain and work the mili- 
tary railway line constructed between Antung and Muk- 
den and to improve that said line so as to make it fit for 
the conveyance of commercial and industrial goods of all 
nations." " 

Finally, Japan secured the Kirin-Changchun Railway » 
and extensions from China. Section b, Clause 3, of the 
Convention between Japan and China signed at Peking 
April 15th, 1907, provides as follows: "If the Kirin- 
Changchun line should hereafter build branch lines ori 
an extension the construction of such lines shall rest 
of right with the Chinese Government, but if there shall 
be a lack of capital, application should be made to the 
South Manchurian Railway Company for an arrange- 
ment." ^ The branch lines as well as a participation in 
the construction of the Changchim-Kirin line were con- 
ceded to Japan in the above mentioned agreement of 
Sept., 1909. 

Referring to several of the later railway concessions 
the Fa/r Eastern Review remarks : " By securing from 
China the control and administration of the Kirin- 
Changchun Railway, and extension of the agreements 
governing the South Manchurian and Antung-Mukden 
railways, as well as the refusal of foreign loans for 

" See " British and Foreign State Papers," Vol. 98, page 740. 
«• Sec " British and Foreign State Papers," Vol. loi, page 275. 



1/6 FOREIGN FINANCIAL CONTROL IN CHINA 

• 

railway purposes in South Manchuria, Japan has the 
satisfaction of knowing that she is now dominant in the 
country so far as railways are concerned even if she is 
eventually unable to extract from China the consent 
necessary to establish her overtly in a supremely favored 
position politically." ^'' 

All the railways in Southern Manchuria, constructed 
or projected, belong to the one great Japanese state-con- 
•troUed system, and have connection with the Korean 
military system. They consequently will, aside from 
commercial advantages, afford Japan further facilities 
for the movement of troops in case of necessity. This 
is the opinion of Harrison, who writes : " It can 
scarcely be doubted that, in the event of hostilities with 
Russia or China, Japan would not be long about avail- 
ing herself of the Chinese railroads, which would render 
her position even stronger." ^^ 

In this connection it has to be remembered that South 
Manchuria stands simultaneously with the supervision of 
the railway company under the military regime of 
Japan, based upon an addition to Article III of the Treaty 
of Portsmouth which grants the right to Japan to main- 
tain " guards " to protect the railway lines in Man- 
churia. 

27 See " Far Eastern Review/' Vol. ii, page 375. 

28 See Harrison, op. cit., page 292. 



JAPAN 177 

* 

For the first two years after the war, the military 
grip of Japan upon Manchuria was a tight one and not 
without legal basis. Japan and Russia in Article III 
of the Portsmouth treaty mutually engaged : ^^ 

1. "To evacuate completely and simultaneously Man- 
churia except the territory affected by the lease of the 
Liaotung Peninsula, in conformity with the provisions 
of additional Article I annexed to this treaty " ; and 

2. " To restore entirely and completely to the ex- 
clusive administration of China all portions of Man- 
churia now in the occupation or under the control of 
the Japanese or Russian troops with the exception of 
the territory above mentioned." 

The war then was followed by a " legal " evacuation 
period during which Manchuria was under Russian and 
Japanese military control. The end of the so-called 
evacuation period however, was set as late as March, • 
1907, thus giving Japan and Russia the right to a two 
years' military administration of the country. It was 
mainly during this period that many accusations by 
Western journalists were heard, pointing to breaches of 
the doctrines of the " open door," " equal opportunity " 
and " integrity of China " on the part of Japan. But 
inasmuch as it is the purpose of this treatise to investi- 
gate and analyze well-founded facts, we cannot pay any 

«• Sec " British and Foreign State Papers," Vol. 98, page 735- 



178 FOREIGN FINANCIAL CONTROL IN CHINA 

attention to alleged breaches of obligations. Besides, 
Japan has at several occasions acknowledged and bound 
herself to adherence to the principles in question. 

First of all Japan had answered favorably to Mr. 
Hay's " Open Door Policy " circular sent to the Great 
Powers in 1899.^^ On January 30, 1902, the Anglo- 
Japanese Offensive and Defensive Alliance was con- 
*cluded,^^ which clearly sets forth that the two govern- 
ments are specially interested in maintaining the " inde- 
pendence and territorial integrity of the Empire of China 
and the Empire of Korea, which pledge has been broken 
since by Japan, and in securing equal opportunity in 
those countries for the commerce and industry of all 
nations." 

The same words recur in the agreement between 

• Japan and Great Britain of August 12, 1905, made public 
September 27, 1905 — being a renewal of the alliance 
— which in its preamble gives the preservation of the 
integrity of China and maintenance of equal opportunity 
for all as one of its principal objects.^ ^ The alliance 
was reaffirmed in 191 1. 

In Article IV of the Portsmouth Treaty " Japan and 

* Russia reciprocally engage not to obstruct any general 
measures common to all countries which China may take 

80 The text of the circular, etc., will be dealt with in its proper 
place in the following chapter on the United States. 

81 See Rockhill, op. cit., No. 16. 

82 " British and Foreign State Papers," Vol. 98, page 136. 



JAPAN 179 

for the development of the commerce and industry of 
Manchuria." ^* 

In 1907 two understandings were arrived at by Japan 
as one party, reaffirming the adherence to the principles 
in question. Namely: On June 10, 1907, an agreement 
was concluded between Japan and France, in which the 
following words occur: "The Grovemments of Japan 
and France, being agreed to respect the independence 
and integrity of China, as well as the principle of equal 
treatment in that coimtry for the commerce and sub- 
jects or citizens of all nations," etc.^* 

And on July 30th of the same year, a convention 
between Japan and Russia took place in which the two 
parties " recognize the independence and territorial integ- 
rity of the Empire of China, and the principle of equal 
opportunity in whatever concerns the commerce and in- 
dustry of all nations in that Empire." *' 

On November 30, 1908, a more explicit understanding 
than that of 1899 was reached between Japan and the 
United States. At that date notes were exchanged 
between the two countries, declaring their policy in the 
Far East as follows : ^® 

Article II: The policy of both Governments imin- 
fluenced by any aggressive tendencies, is directed to the 

88 " British and Foreign State Papers," Vol. 98, page 735. 
•* See " British and Foreign State Papers," Vol. 100, page 913. 
•• See " British and Foreign State Papers," Vol. loi, page 462. 
•• See American loHmal of International Law, January, 1909. 



l8o FOREIGN FINANCIAL CONTROL IN CHINA 

maintenance of the existing status quo in the region 
mentioned (Pacific Ocean) and to the defense of the 
principle of equal opportunity for commerce and industry 
in China. 

Article IV : They are also determined to preserve the 
common interests of all powers in China by supporting 
by all pacific means at their disposal the independence 
and integrity of China and the principle of equar oppor- 
tunity for the commerce and industry of all nations in 
that Empire. 

And finally two years later Japan and Russia, in the 
convention of July 4th, 191 o, in relation to Manchuria 
declared in Article II : ^^ " Each of the High Contract- 
ing Parties undertakes to maintain and respect the 
status quo in Manchuria resulting from all the treaties, 
conventions, and other arrangements concluded up to 
this date either between Russia and Japan or between 
those two powers and China.'' 

The different conventions, agreements and so forth, 
^clearly prove that Japan is committed as deeply as other 
powers are, to the policy of the " open door," " equal 
opportunity " and " integrity of China.'' 

It has always been Japan's emphatic contention that 
so far no measure she has taken is inconsistent with 
the doctrines to which she has pledged herself. Indeed 
strict adherence to the principles of international law 

87 See " British and Foreign State Papers," Vol. 103, page 586. 



JAPAN l8l 

has according to Count Okuma always been considered 
the wisest diplomacy. Count Okuma says : " I desire 
here to emphasize the fact that foreign intercoiu'se 
must above all things be planned on a large scale, for 
all diplomatic projects have immediate interest for the 
whole world; and that, since foreign policy, or rather, 
national policy, must be fixed, unchanged, and contin- 
uous, the best method of diplomacy is to adhere strictly 
to all principles of international law." ^® 

In further defense of Japan against any accusations 
we have to consider that Japan could not afford to be 
altogether altruistic in her methods as long as Russia's 
policy in the north remained a menace to Japan. Con- 
cerning Japan's justification of her actions in Manchuria 
by reference to Russian precedent we only need to refer 
to our chapter on Russia. There we find that the Man- 
churian Railway, which according to Article VI of the 
Portsmouth Treaty was transferred to Japan " together 
with all rights, privileges and properties appertaining 
thereto " and which according to Article VII was in 
no wise to be exploited for strategic purposes, had enabled 
Russia to dominate the whole of Manchuria and at once 
had given her a predominance in North China which 
placed other Powers at a marked disadvantage. Russia's 
railways in that region were specific means for encroach- 
es See A. Stead, " Japan by the Japanese," chapter Foreign Policy 
by Count Okuma, page 221. 



1 82 FOREIGN FINANCIAL CONTROL IN CHINA 

ment upon China, that is, for Russian imperialistic ex- 
pansion. The Russification of the country had pro- 
ceeded at a fast pace and other Powers — as for instance 
Great Britain — were effectively excluded from railway 
participation. So also was China, and, although accord- 
ing to the original agreement the Chinese Eastern Rail- 
way was to be imder Chinese direction, only Russians 
managed the lines. 

Is it not surprising, then, that Japan, when she fol- 
lowed Russia in the possession of the railroads and in 
the control of the country, was determined to reap the 
fruits of her hard won victories without restriction and 
that Japan, however altruistic her professions might 
have been, would not readily subordinate her own in- 
terests to those of China or other foreign powers. For, 
on behalf of Japan it has been urged that any special 
advantages she has secured in Manchuria are merely in 
the nature of reward for her vast expenditure in blood 
and treasure, and that, moreover, the control over Man- 
churia and other parts of Eastern Asia that might fol- 
low — together with the exploitation of those regions — 
is a matter of life and death for her welfare and 
national existence, especially in the face of international 
economic competition. 

In this connection it is not only curious but also very 
significant to observe that Russia in the North followed 
— or at least pretended to follow — Japan's policy in 



JAPAN 183 

the South. Behind the attitude of both was the ever 
present envy and mistrust of the other. Both have been 
enemies and might have continued to be had it not been 
for the Russian revolution. Therefore we have been 
given books bearing titles such as the " Coming Struggle 
in Eastern Asia." 

The impartial observer, then, must not permit himself 
to be deceived by the apparent amity between the two 
Powers which was established in 1907. 

The Russo-Japanese business agreements in relation to 
Manchuria concluded on July 30th, 1907, and on July 
4th, 1910 — being of the most friendly nature — lead 
to the assumption that Japan and Russia had made up 
their minds for matter of convenience — and for the 
time being — to divide their interests in Manchuria be- 
tween them, to strengthen their positions in their respec- 
tive " spheres " and to guarantee to each other the status 
quo against any possible intruder: for such had 
supposedly appeared in the person of Mr. Knox, who 
had urged intemationalisation of certain railways in 
Manchuria and construction of new lines under inter- 
national auspices.^® The efforts of the American state 
department only hastened the conclusion of the second 
agreement which took place on the Fourth of July. 

We quote the text in full : *^ 

8» See Chapters VII and VIII. 

*® See " British Foreign and State Papers/* Vol. 103, page 586. 



1 84 FOREIGN FINANCIAL CONTROL IN CHINA 

1. With the object of facilitating communications and 
developing the commerce of the nations, the two high 
contracting parties agree to extend to one another their 
friendly cooperation with a view to the improvement of 
their respective railway lines in Manchuria, and the per- 
fecting of the connecting services of the said lines, and 
to abstain from all competition prejudicial to the realiza- 
tion of this object. 

2. Each of the high contracting parties undertakes to 
maintain and respect the status quo in Manchuria result- 
ing from all the treaties, conventions, and other arrange- 

♦ments concluded up to this date, either between Russia 
and Japan or between those two Powers and China. 
Copies of the said arrangements have been exchanged 
between Russia and Japan. 

3. In the event of anything arising of a nature to 
threaten the status quo mentioned above, the two high 

'contracting parties shall enter each time into communi- 
cation with each other with a view to coming to an under- 
standing as to the measures they may think it necessary 
to take for the maintenance of the said status quo. 

The agreement having been happily concluded, Japan 
endeavored to take full advantage of the special position 
she held in South Manchuria. William Blane, in an 
article, "The Japanese in China,'' *^ writes in 1915: 

*i See Journal of the American Asiatic Association of July, 1915, 
page 175. 



JAPAN 185 

" When I went over the works of the South Manchurian 
Railway Company two years ago I was struck by the. 
permanent_ nature of everything that had been done and 
that was in progress . . . extensive additions and costly 
improvements were in progress at the great harbor of 
Dairen, and the main line track wa? being doubled 
throughout. The Company was making huge profits 
and sinking the greater part of them in constructional 
works which will serve for a century after the present 
agreements expire. The Engineer of the 13th of 
November, 19 14, after describing the railways and 
drawing attention to the brief tenure of the company 
adds : In the face of these things Japan, instead of pre- 
paring to reap returns, keeps putting more money into 
the business every year." 

This Russo-Japanese agreement of 19 10 then was the 
crowning achievement of Japan's Manchurian policy. 
What are the principal reasons for Japan's success ? In 
the pursuance of her foreign policy it was primarily 
the monarchical-military and at the same time somewhat 
oligarchical-paternalistic form of her government — 
partly traditional, partly copied from Germany — which 
l)eing well adapted to the special means of Japan has 
made her so successful. That diplomacy has to rest with 
the crown and the crown's advisers, and that the goal, 
once set must not be changed, has been early recognized 
by Japanese statesmen. Says Count Okuma : " The 



l86 FOREIGN FINANCIAL CONTROL IN CHINA 

kind of diplomacy that changes with its director is most 
pernicious and dangerous." ^^ And Douglas, comment- 
ing upon the Proclamation of the Japanese Constitution, 
says : " Foreseeing that, in order to maintain national 
independence and to fulfill what they regard as their 
mission in the East, unity of control and the imfettered 
power of employing all the forces of the nation would be 
indispensable conditions of success, they resolved, while 
enlisting the sympathies of the people, to secure the crown 
against excessive popular interference/' *^ Among other 
means by which Japan has attained her predominant po- 
sition in Asia is to be placed first in historic importance 
the alliance of Japan with Great Britain. The immedi- 
ate practical benefit of the alliance to Japan, renewed 
during the Russo-Japanese War and again in July, 191 1, 
was the readier sale of Japanese bonds. The surplus 
^from war fimds borrowed in England enabled the 
Japanese Government to invest in the South Manchurian 
Railway. Debentures floated in England have resulted 
in the expansion of that great corporation at the expense 
of others, last not least, of Great Britain herself. While 
Britain, France, Belgium, Germany, and even Russia to 
some extent have financed their railways themselves, 
Japan alone has constructed and equipped her railways on 

*2 See Count Okuma in A. Stead, " Japan by the Japanese," page 
222. 
" See Douglas, op. cit, page 201. 



JAPAN 187 

the mainland of Asia almost exclusively with foreign 
capital, and that capital — thanks to the alliance — is 
British. 

But above all, the alliance permitted Japan's entry 
into the present World War. When Japan took pos- 
session of the territory originally leased to Germany,i 
she did so as the representative of Great Britain and her 
European Allies. At that time Count Okuma claimed 
that:** "Every sense of loyalty and honor obliges 
Japan to cooperate with Great Britain to clear from 
these waters the enemies who in the past, the present 
and the future menace her interests, her trade, her 
shipping, and her people's lives." And the Japanese 
Foreign Office addresses the United States as follows : ** 
" Aside from the history of the seizure of the place by * 
Germany and her conduct dating back to and including 
her intervention, in conjunction with Russia and France 
after the Chino- Japanese War, it is absolutely necessary 
to eliminate such possession completely if Japan is to 
restore immediately complete peace in the Far East in 
accordance with the terms of the Anglo- Japanese alli- 
ance." 

Japan's interference, then, is based upon Article A, of 
the Preamble in conjunction with Article I, of the treaty * 

** Journal of the American Asiatic Association, Vol. XIV, No. 8, 
page 231. 
« Ibidem. 



1 88 FOREIGN FINANCIAL CONTROL IN CHINA 

of July 13, 191 1, the Preamble stating as object of the 
treaty,*® " the consolidation and maintenance of the 
general peace in the regions of Eastern Asia and India." 

The seizure of Kiaochau was connected with various 
substantial advantages to Japan: 

• Japan occupied the Kiaochau-Tsinanf u Railway. This 
seizure apparently meant a violation of Chinese terri- 
tory and the Chinese protested against it as falling en- 
tirely out of the German territory which has been leased. 
But from the Japanese standpoint it would be dangerous 
to leave the railway in the hands of the enemies. 

Furthermore, the Japanese secured from China sub- 
stantial and exclusive concessions in Shantung. To that 
end the two countries concluded a treaty respecting the 
Province of Shantung and exchanged notes respecting 
the restoration of the leased territory of Kiaochau Bay 
— both on the 2Sth day of the 5th month of the 4th 
year of Taisho.'*'^ 

We quote the important passages of the treaty, etc.: 
Article I : The Chinese Government agrees to give full 
assent to all matters upon which the Japanese Govern- 
ment may hereafter agree with the German Government 
relating to the disposition of all rights, interests and con- 
cessions which Germany, by virtue of treaties or other- 

*<* See " British and Foreign State Papers," Vol. 104, page 173. 

*^ The text of the treaties and exchange of notes is to be found 
in the Supplement to American Journal of International Law, Vol. 
10, No. I, pages i ff. 



JAPAN 189 

wise, possesses in relation to the Province of Shan- 
tung. 

Article II: The Chinese Government agrees that as 

* 

regards the railway to be built by China herself from 
Chefoo or Lungkow to connect with the Kiaochau- 
Tsinanfu railway, if Germany abandons the privilege 
of financing the Chefoo-Weihsien line, China will 
approach Japanese capitalists to negotiate for a loan. 

And as to Kiaochau : " When after the termination * 
of the present war, the leased territory of Kiaochau bay 
is completely left to the free disposal of Japan, the 
Japanese Government will restore the said territory to 
China under the following conditions: 

" I. The whole of Kiaochau bay to be opened as a com- ^ 
mercial Port. 

" 2. A concession under the exclusive jurisdiction of 
Japan to be established at a place designated by the 
Japanese Government." 

Finally, on the same day Japan and China concluded 
a treaty and exchanged various notes respecting South 
Manchuria and Eastern Inner Mongolia. The respec- 
tive agreements of this date may be summed up as fol- 
lows : *® The lease of Port Arthur and Dalny and the 
terms of the South Manchuria Railway and the Antung- 
Mukden Railway shall be extended to 99 years. 

*« See American Journal of International Law, Vol. 10, No. i, 
Supplement pages 5 ff. 



I90 FOREIGN FINANCIAL CONTROL IN CHINA 

Japanese subjects in South Manchuria and Eastern 
dinner Mongolia receive further privileges as to trad- 
ing, traveling and leasing properties. 

China will open suitable places in these regions as 
commercial ports. 

Railroad agreements between Japan and China may 
be revised as soon as more advantageous terms than 
those existing are granted to other foreigners. 

Japanese subjects shall investigate and select mines in 
specified areas within said regions. 

Loans for building railways in said regfions may be 
^negotiated with Japanese capitalists in preference to 
other foreigners. 

If foreign advisers or instructors on political, finan- 
cial, military or police matters are to be employed in 
South Manchuria, Japanese may be employed first. 

Finally, China and Japan agreed upon cooperation 

|in the working of the Hanyehping Company, China not 

being permitted to convert it into a state enterprise nor 

to cause it to borrow and use foreign capital other than 

Japanese. 

These agreements require but little commentary. 
They strengthen Japan's position in Southern Manchuria 
through the extension of all leases to 99 years and 
through the provision of foreign advisers, if such are 
to be employed, they give to Japan more exclusive con- 
cessions and privileges in Shantung, Eastern Inner 



JAPAN 191 

Mongolia and Southern Manchuria ; and they give pref- 
erence to Japanese financiers in the building of new rail- 
roads in said regions. 

There are three points we now mean to emphasize: 
Firstly, the United States-Japan agreement of November 
2, 1917, has dispersed much of the doubt and suspicions 
about Japan's ulterior aims in China which had been 
voiced so freely throughout the world.*® Referring to 
Japan's special interests in China the agreement says: 
" The United States has every confidence in the repeated 
assurances of the Imperial Japanese Government that, 
while geographical position gives Japan much special 
interests, they have no desire to discriminate against the 
trade of other nations or to disregard the commercial 
rights heretofore granted by China in treaties with other 
powers." The agreement also denies that the two gov- 
ernments ''have any purpose to infringe in any way 
the independence or territorial integrity of China." 
Secondly, Japan's control over her new spheres will again 
primarily be exercised through railways ; in other words, 
it will be financial. Thirdly, Japan is extending her 
control in China while the control of other nations is 
declining. 

Japan has taken over the protection of British interests^ 
in Eastern Asia. She has eliminated Germany. She 
has concluded a treaty with Russia, which came near 

*• Sec especially F. McCormick, " The Menaee of Japan." 



192 FOREIGN FINANCIAL CONTROL IN CHINA 

to being an alliance. The text of this treaty, concluded 
on July 3rd, 19 16, reads as follows: *^^ 

" The Imperial Governments of Japan and Russia, 
having resolved by united efforts to maintain permanent 
peace in the Far East, have agreed upon the following. 

" Article I : Japan will not become party to any 
arrangement or political combination directed against 
Russia. Russia will not become party to any arrange- 
ment or political combination directed against Japan. 

" Article II : In case the territorial rights or special 
interests in the Far East of one of the contracting parties 
recognized by the other contracting party are menaced, 
Japan and Russia will act in concert on the measures 
to be taken in view of the support or cooperation neces- 
sary for the protection and defense of these rights and 
interests." 

Mr. Kawakami makes the following comment upon 
this treaty : "To call the new convention an alliance 
is, perhaps, not quite correct. A treaty of alliance must 
provide mutual obligations on the part of the high con- 
tracting parties to render armed assistance to each other 
in case their respective interests are in danger. The 
most significant part of the convention lies in the wide 
application which it apparently permits. While it is 
obvious that the covenant aims chiefly to secure the 
respective interests of the contracting parties in Man- 

^0 See American Journal of International Law, Siippl. X, 239. 



JAPAN 193 

churia and Mongolia, its scope is not restricted to these 
two countries but covers the entire Far East." ^^ 

An additional agreement between Russia and Japan 
throws considerable light upon the real value of the 
convention to Japan.*^^ The Chinese Eastern Railway 
has been sold by Russia to Japan from Changchun to Lao- • 
shaokou for six million yen. The length is 71 miles. 
Russia furthermore has extended to Japan the privilege of » 
navigating the Second Sungari River. In other words 
Japan's interests in Manchuria are expanding. Russia 
was under considerable obligation to Japan for war ^ 
supplies, and otherwise; the convention was the quid 
pro quo. 

Last not least has Japan welcomed the decision of the 
United States to enter the war. She has gladly offered 
the protection of American interests on the whole Pacific • 
and a close cooperation with the United States in the 
pursuance of the war. In return for these services she 
has now received an acknowledgment of her " special * 
interests " in China by the government of the United 
States. Aside from the declarations of adherence to 
the " open door " and " independence and territorial 
integrity of China " principles, the agreement of Novem- 
ber 2, 19 1 7, contains the following most important pas- 
sage : " The governments of the United States and 

51 See K. K. Kawakami, Review of Reviews, Sept., 1916. 

°2 See Kawakami, ibidem, and " Far Eastern Review," Aug., 1916. 



194 FOREIGN FINANCIAL CONTROL IN CHINA 

Japan recognize that territorial propinquity creates 
special relations between countries, and, consequently, the 
government of the United States recognizes that Japan 
has special interests in China, particularly in the part 
to which her possessions are contiguous." This agree- 
ment is doubtless one of the greatest achievements of 
Japanese diplomacy. It removes all danger of friction 
between the United States and Japan; it secures the in- 
dependence and territorial integrity of China and the 
*' open door '* and equal opportunity for commerce and 
industry in China; it opposes ''the acquisition by any 
government of any special rights or privileges that would 
aflfect the independence or territorial integrity of China 
or that would deny to the subjects or citizens of any 
country the free enjoyment of equal opportunity in the 
commerce and industry of China " ; and last, not least, it 
recognizes Japan's predominant position in Eastern Asia. 
Thus is Western control in China gradually declining 
while Japanese control is in the ascendancy. All treaties, 
conventions, agreements, and alliances through which 
Japan is consolidating her position are concluded for 
the consolidation and maintenance of a permanent peace 
in Eastern Asia. This is by no means merely a phrase. 
It is the crux, the key, to the whole Far Eastern Ques- 
: A Permanent Peace, but a Japanese Peace, a Pax 
!ca. Such is the secret, then, of Japan's control in 
. : an Eastern Asiatic Doctrine with Japanese Hege- 



JAPAN 195 

mony — Japan to be Sovereign Arbiter and High Pro- 
tector of Eastern Asia. To quote the words of Aubert: 
" Paix Japonaise de TExtreme-Orient, comme jadis il 
y eut une Pax Romana dans le monde mediterraneen, 
comme aujourd'hui il y a une paix Britannique aux 
Indes, ime paix Americaine dans les deux Ameriques, 
c'est-a-dire la paix dans une partie du monde imposee 
par un peuple fort qui ne tolere point de querelles privees 
ou d'agression etrangere sur le territoire qu'il protege. 
Arbiter souverain entre les peuples Extreme-Orientaux 
et leur defenseur contre toute attaque des puissances 
occidentals, tel pent apparaitre le Japon." *' 

5» Aubert, " Paix Japonaise," page 37. 



CHAPTER VII 



UNITED STATES 



The United States is the only great nation that has 
maintained throughout its relations with China a con- 
sistent attitude of unselfishness and of a decent consid- 
eration and respect for the sovereign rights of the 
Chinese people. Not only has the United States done 
this in her own relations, but she has frequently attempted 
to make others do likewise, be it indirectly through her 
example or directly through soliciting adherence to the 
open door principle. It is obvious then that without a 
reference to America's policy our investigation would 
be incomplete — although the United States has herself 
never exercised any " control *' whatsoever. 

From the inception of American relations with China 

at the birth of the republic, when George Washington 

♦commissioned as consul Major Shaw, down to the present 

day America has made no attempt to obtain an acre of 

Chinese territory. She has contented herself with the 

^development of an extensive trade and diplomatically 

with the establishment and maintenance of friendly 

relations. Thus the American Secretary of State de- 

*clined in 1857 ^^ Lord Napier to participate in the 

196 



UNITED STATES 197 

Chinese War.^ In the instructions to the American 
representative in China of May 30th, 1859, we find the 
following significant passage : ^ " This country, you will 
constantly bear in mind, is not at war with the Govern- * 
ment of China, nor does it seek to enter that empire for 
any other purposes than those of lawful commerce, and 
for the protection of the lives and property of its citi- 
zens. The whole nature and policy of our Government 
must necessarily confine our action within these limits, 
and deprive us of all motives, either of territorial 
aggrandizement or the acquisition of political power in 
that distant region." In the following year the United 
States concluded a Treaty of Peace, Amity, and Com- 
merce with China. In this treaty, made at a time when 
the Chinese Government appeared to be peculiarly 
friendless, we find the remarkable stipulation that " if 
any other nation should act unjustly or oppressively 
(towards China) the United States will exert its good 
offices, on being informed of the case, to bring about 
an amicable arrangement of the question, thus showing 
their friendly feelings." ^ 

It was the American envoy to China, Anson Burlin- 
game, who first advocated the " open door " and called 
a halt to the attempts at selfish exploitation which 
appeared to g^ide the foreign powers in their attitude 

1 See Senate Document 35th Congress, ist Session, Vol. 12, No. 47. 

2 See Senate Document 35th Congress, ist Session, Vol. 12, No. 47. 
■ See Malloy, " Treaties," Vol. i, page 212, Article I. 



198 FOREIGN FINANCIAL CONTROL IN CHINA 

toward China. So well had he gained the sympathy 
and friendship of the Chinese people that he was invited 
to become the head of a Chinese embassy to all the treaty 
powers. The Burlingame treaty, negotiated between 
China and the United States, was strikingly fair and 
gave full recognition to China of her rights of eminent 
domain over all her territory, even including that occu- 
pied by foreign merchants.* In Article VIII '* The 
United States, always disclaiming and discouraging all 
practices of unnecessary dictation and intervention by 
one nation in the affairs or domestic administration of 
another, do hereby freely disclaim and disavow any inten- 
tion or right to intervene in the domestic administration 
of China in regard to the construction of railroads, tele- 
graphs or other material internal improvements." 

The formal declaration of the open door doctrine was 
made in 1800. Towards the close of the nineteenth 
century the commercial and political position of the 
United States in China had begun markedly to decline. 
The reason for this is mainly to be found m the activities 
of other Powers. " When in 1894, — remarks Rock- 
hill * — the new era of rapid encroachment on China 
its powerful neighbors began, it became apparent to 
United States that if it did not take measures to 
< the movement its trade would be wiped out, its 

Malloy, " Treaties," Vol. I, page 2z(i, Article I. 

loumal of the American Asiatic Association, Vol. XIV, No. 



UNITED STATES 199 

religious and educational interests restricted, and its 
influence and prestige with the Chinese reduced to 
naught." The Washington Government readily recog- 
nized the danger and initiated international action in 
China's favor. With a view to securing equal oppor- 
tunities in the development of China's trade, which, was 
believed to offer vast fields for commercial and financial 
enterprise, America's first object was to prevent the par- 
tition of China, and particularly the absorption ojLMan- V"^ 
churia by Russia, and also the acqui sition by any i*^i"gl<" 
Power of exclusive interests and " rijerhts." To that end 



Mr. Hay sent his famous notes to the several Powers. 
The so-called policy of " open door," for the first time 
officially pronounced at that occasion, demanded formal 
assurances that each power within its respective sphere 
of whatever influence : • " First : Will in no way inter- 
fere with any treaty port or any vested interest within 
any so-called ' sphere of interest ' or leased territory it 
may have in China. 

" Second : That the Chinese treaty tariff of the time 
being shall apply to all merchandise landed or shipped 
to all such ports as are within said * sphere of interest ' 
(unless they be ' free ports '), no matter to what nation- 
ality it may belong, and that duties so leviable shall be 
collected by the Chinese Government. 

* See Rockhill, op. cit., No. 28. See also " Foreign Relations of 
the United States," 1899, pages 128 ff. 



200 FOREIGN FINANCIAL CONTROL IN CHINA 

" Third : That it will levy no higher harbor dues on 
vessels of another nationality frequenting any port in 
such ' sphere ' than shall be levied on vessels of its own 
nationality, and no higher railroad charges over lines 
built, controlled or operated within its ' sphere ' on mer- 
chandise belonging to citizens or subjects of other nation- 
alities transported through such * sphere ' than shall be 
levied on similar merchandise belonging to its own 
nationals transported over equal distances." 

All powers promptly acknowledged adherence to the 
principle of the " open door " as set out in the circular. 
But the proposition, as Mr. Willard Straight remarks, 
** favorably received at first and reaffirmed in the nego- 
tiations which followed the relief of Peking, won. the 
adherence of other nations not because of any particular 
consideration for China but because of their mutual 
jealousy and their realization that partition would im- 
pose upon them responsibilities which they might find 
it difficult to bear. They did not therefore surrender 
the ports which they had forcibly leased, but their accep- 
tance of the * open door ' doctrine nevertheless marked 
the beginning of a financial and cornmercial, rather than 
territorial, definition of their respective interests." '^ 

The United States should find several other occasions 
to reen force the demand for ** open door." The next 
step taken in China's favor was a circular note of July 

7 See W. Straight, " China's Loan Negotiations," page 124, 



UNITED STATES 20I 

3, 1900, inviting the Powers cooperating in China against 
the Boxers to adhere to the principles maintained by the 
United States on the Chinese question.* In this circu- 
lar Mr. Hay declared the policy of the United States 
to be : " To seek a solution which may bring about 
permanent safety and peace to China, preserve Chinese 
territorial and administrative entity, protect all rights 
guaranteed to friendly powers by treaty and international 
law, and safeguard to the world the principle of equal 
and impartial trade with all parts of the Chinese Em- 
pire." In 190 1 the United States refused to assent to 
the imposition of an oppressive indemnity upon China 
which would make her the fiscal vassal of foreign powers 
for an indefinite period. Later on the American Gov- 
ernment remitted to China a substantial proportion of 
its Boxer indemnity. On February ist, 1902, Mr. Hay 
sent a memorandum to the Powers protesting against 
monopolistic concessions made to Russia by China, 
which would " distinctly contravene treaties of China 
with foreign Powers, affect rights of citizens of the 
United States by restricting rightful trade, and tend to 
impair sovereign rights of China and diminish her ability 
to meet international obligations." ® 

America's adherence to the " open door " doctrine 
found finally an expression in the agreement between the * 

■ ** Foreign Relations of the United States," Appendix to 1901, Af- 
fairs in China, page 12. 
• See " Foreign Relations," 1902, page 275. 



202 FOREIGN FINANCIAL CONTROL IN CHINA 

United States and Japan of November 30th, 1908,^^ in 
which we find the following passages : " The policy of 
both Governments, uninfluenced by any aggressive ten- 
dencies, is directed to the maintenance of the existing 

\ status quo in the region above mentioned and to the 
defense of the principle of equal opportunity for com- 
merce and industry in China. . . . They are also de- 
termined to preserve the common interest of all powers 
in China by supporting by all pacific means at their dis- 
posal the independence and integrity of China and the 
principle of equal opportunity for commerce and indus- 
try of all nations in that Empire." The year 1908 saw 
also an unofficial reaffirmation of the same policy, when 
*Mr. William Howard Taft addressed the Chamber of 
Commerce at Shanghai. Since the foreign policy of the 
United States was subsequently to be directed by Mr. 
Taft, the respective passage of his speech requires quo- 
tation : 

" The United States and others who sincerely favor 
the open door policy will, if they are wise, not only 
welcome, but will encourage this great Chinese Em- 

t pire to take long steps in administrative and govern- 
mental reform, in the development of her natural 
resources and the improvement of the welfare of her 
people. In this way she will add great strength to her 
position as a self-respecting Government, may resist all 

10 See Malloy, " Treaties," Vol. I, page 1046. 



UNITED STATES 203 

possible foreign aggression seeking undue, exclusive or 
proprietary privileges in her territory, and without 
foreign aid enforce an open door policy of equal oppor- 
tunity to all. I am not one of those who view with 
alarm the effect of the growth of China with her teem- 
ing millions into a great industrial empire. I believe 
that this instead of injuring foreign trade with China 
would greatly increase it, and while it might change its 
character in some respects, it would not diminish its 
profit. A trade which depends for its profit on the 
backwardness of a people in developing their own 
resources and upon their inability to value iat the proper 
relative prices that which they have to sell and that 
which they have to buy is not one which can be counted 
upon as stable or permanent. . . . For the reasons I 
have given, it does not seem to me that the cry of ' China 
for the Chinese ' should frighten any one. All that is 
meant by that is that China should devote her energies 
to the development of her immense resources, to the 
elevation of her industrious people, to the enlargement 
of her trade and to the administrative reform of the 
Empire as a great national government. Changes of 
this kind would only increase our trade with her. Our 
greatest export trade is with the countries most advanced 
in business methods and in the development of their 
particular resources. In the Philippines we have learned 
that the policy which is best for the Filipinos is best in 



204 FOREIGN FINANCIAL CONTROL IN CHINA 

the long run for the countries who would do business 
with the Islands." " 

Besides its political importance Mr. Taft's speech is 
of great significance since it inaugurates a period of more 
vigorous participation on the part of America in the 
financial development of the Chinese Empire. Ameri- 
can finance in China had up to then been singularly un- 
successful, and had met with several failures. The first 
instance of this kind was the failure of American fi- 
nanciers to obtain the contract for the construction of 
the Peking-Hankow line. The American group was 
working hard to obtain this concession. But in 1^7 
the Belgian Societe d' Etude de Chemins de fer en Chine 
appeared on the scene at the right moment and with the 
material and moral backing of France and Russia 
obtained the concession in May of the same year.^^ 

American financiers then formed the American-China 
* Development Company under Mr. Calvin Brice, with 
the purpose of building the Hankow-Canton Railway. 
A contract was signed between this company and Dr. 
Wu Ting-Fang acting as representative of Mr. Sheng 
Hsuan-Huai in April, 1898.^^ The company was to 
provide L4,ooo,ooo. In 1899 Mr. Parsons surveyed 

11 See Millard, op. cit, page 375. 

12 See U. S. Monthly Consular Reports of 1898, Vol. LVIII, No. 
218. 

13 See British Blue Books, " China," No. i, 1899, Vol. CIX, pages 
336-339. 



UNITED STATES 205 

the line. To go into the details of the contract is un- 
necessary since it is a dead letter to-day. For very soon 
a French-Belgian combination began to undermine the * 
scheme which with the death of Mr. Brice had lost its 
main supporter. That the Belgians themselves ultimately 
suffered defeat must be ascribed in the main, accord-^ 
ing to Mr. Kent, to the course taken by the Russo- 
Japanese War.^* The American element became para-, 
mount again by the influence of J. P. Morgan. Finally, 
however, the Huanese party, supported by the Progres- 
sives of Kuangtung, pressed for the annulment of the 
concession, which was arranged in September, 1905, the 
American Government being glad to rid itself of any fur- 
ther connection with a business that had been discredit- 
able from the outset. The road was given over to the 
provincial authorities. 

The third large scale American railroad project that 
remained without success was Mr. Harriman's Man- • 
churian railroad scheme which served as forerunner_..to 
Mr. Knox's Manchurian " neutralizatio n ^' scheme. A 
detailed account of these negotiations is given in J. O. 
P. Bland's book on " Recent Events and Present Policies 
in China," of which account we shall give a brief sum- 
mary. ^^ 

In September, 1905, shortly after the signature of the • 



14 
15 



See Kent, op. cit., pages 1 10 ff. 
See Bland, op. cit., Chapter XI. 



206 FOREIGN FINANCIAL CONTROL IN CHINA 

Portsmouth Treaty, Mr. E. H. Harriman proposed to 
Japan a joint American- Japanese ownership and work- 
ing of the South Manchurian Railway. The proceed- 
ings on the side of China and Japan were, in Mr. Bland's 
words, " so instinct with duplicity and diplomatic sharp 
practice that it is impossible to form an opinion on the 
real merits of this peculiar question." The negotiations 

^did not bear any fruit and nothing was heard of Mr. 
Harriman's scheme until 1909. 

In the mean while the Chinese Gover nment, represen ted 

•' by Tang Shao-yi, had, in 1907, arranged with Mr. W. D. 
Straight, United States Consul-General at Mukden, for 
the creation of a Manchurian Bank. This institute, fi- 
nanced by American capital, was to be the financial agent 
''of the Manchurian Government, and was to undertake, 
together with British financiers, the construction of a 
line from Hsinmintung to Aigun and other important 
enterprises for the development of the commerce and 
industry of Manchuria. For the establishment of the 

' institute a loan of $20,000,000 was intended and Messrs. 
Kuhn, Loeb and Co. of New York signified to the State 
Department at Washington their readiness to undertake 
to finance the Manchurian Bank. But owing to a change 

i-in China's policy following the death of the Emperor 
Kuang Hsu and due to Japanese obstruction the scheme 
fell through late in 1908. 
•• In December of the same year negotiations were 



UNITED STATES 207 

opened at New York in regard to the Chinese Eastern 
Railway which the Russian Grovemment was willing to 
sell to American financiers provided Japan would agree 
to sell the South Manchurian line. Both schemes seemed , 
to promise success. But in 1909 Mr. Harriman died* 
and his plans died with him. 

Nevertheless, Mr. Harriman's schemes- had borne 
fruit in so far as they served as the foundation to Mr. 
Knox's scheme for the neutralization of the Manchurian 
railways which was to meet with such spectacular fail- 
ure. Mr. Knox in 1909 submitted his scheme simul-* 
taneously to the British, German, Russian, Japanese and 
Chinese Governments without having previously received 
Russia's and Japan's acquiescence. The whole proposi- 
tion may be best illustrated by quoting Mr. Bland : ^® 

" The purport of Mr. Knox's scheme amounted to a 

• 

proposal that the Powers addressed should authorize the 
organization of an international syndicate to buy out the 
Russian and Japanese railway interests in Manchuria. 
In failing to consult Russia and Japan separately, the 
Secretary of State apparently assumed that the results 
of the negotiations which had taken place between the 
governments of. these powers and Mr. Harriman war- 
ranted him in taking their consent for granted. Politi- 
cally speaking, everything in the situation of the moment 
pointed to the necessity of securing, at least, the specific 

1* See Bland, op. cit., pages 317 ff. 



2o8 FOREIGN FINANCIAL CONTROL IN CHINA 

approval of the Russian Government on behalf of Mr. 
Harriman's schemes before latmching the international 
scheme as a definite proposal. . . . The scheme as pre- 
sented was a political gaffe, and the blunder was aggra- 
vated by the suggestion that, if the powers were tmwill- 
ing to join in the general neutralization scheme, they 
should at least unite in the financing and construction 
of the Chinchow-Aigun Railway. In other words, if 
Russia and Japan were imwilling to abandon their 
* special interests ' in this region, they and the other 
powers were invited to create new interests to compete 
with those of the existing railways. . . . Their suspi- 
cions thus aroused, the neutralization scheme was 
doomed, and the Russo-Japanese entente to divide Man- 
churia and Mongolia began from this moment to assume 
definite form and substance. Russia and Japan politely 
but firmly rejected Mr. Knox's proposals. . . . The 
immediate result of the American neutralization scheme 
was the Russo-Japanese agreement of the 4th of July, 
1910." 

Russia and Japan having rejected Mr. Knox's pro- 
posals, there is no wonder then that the Chinchow-Aigun 
Railway scheme was likewise doomed. " It was de- 
nounced as a deep-laid plan for attacking Russian terri- 
tories in Eastern Siberia and Russia's special interests 
in Mongolia and Manchuria," says Bland. In recent 
times the southern half of it, or practically the southern 



UNITED STATES 209 

half of it, has been granted to Japan by China, and now 
Russia has obtained the right to cover the northern sec- 
tion, which, however, does not exactly correspond with 
the route as planned originally.^'' Russia's railway is 
to run from Blagoveshchensk, on the left of the Amur 
River, to Aigun, Mergen and Harbin, with a connection 
between Mergen and Tsitsihar. The line gives Russia 
the final political dominance over her North-Manchurian 
sphere. 

The American Government's policy was irreproachable 
and just. Mr. Bland calls it " a policy of righteous- 
ness, tempered by enlightened self-interest — but it 
required the delicate handling of a Metternich to make 
it effective and to dominate the equally enlightened self- 
interest of other powers." ^® The interests of the 
powers concerned happened to run in an opposite direc- 
tion ; their " control " in China would have been greatly 
diminished had the American proposal been realized. 
Consequently the American policy found much opposi- 
tion and criticism. M. Leroy Beaulieu, the eminent 
French scholar, for instance, criticizes as follows : ^® 
" Les di verses puissances europeennes ayant indique, 
sous une forme ou sous une autre, que leur attitude vis- 

1^ See "Far Eastern Review," Vol. 11, page 151. 

^* See Bland, op. cit., page 319. 

1* See P. Leroy Beaulieu, " Les fitats-Unis, Le Japon et la Rus- 
sie dans le Nord Du Celeste-Empire. L'Economiste Fran^aise/* 
March 19, 1910, page 405. 



2IO FOREIGN FINANCIAL CONTROL IN CHINA 

a-vis de la proposition americaine etait, en definitive, 
subordonnee a celle des deux principaux interesses, la 
cession des chemins de fer existant en Mandchourie est, 
aujourd'hui, une question resolue par la negative et 
abandonnee. Mais la ne se bomait pas Tinitiative 
americaine. ... La diplomatie americaine est encore un 
peu jeune et fruste, elle Ta montre en cette occasion, 
ou elle a use d*habiletes quelque peu pueriles. Rendre 
publiques des propositions aussi graves que le rachat et 
la neutralisation des chemins de fer russes et japonais 
de Mandchourie et la construction d'une nouvelle grande 
ligne dans cette province, sans avoir preablement negocie 
avec Tokio et Saint-Petersbourg, c'etait commettre un 
acte assurement peu aimable sinon discourtois, et c'etait 
aggraver encore, par un manquement de forme, des 
dispositions qui devaient necessairement etre peu favor- 
ables au fond." 

In spite of this diplomatic faux pas the world gave, 
nevertheless, to America credit for appreciating the 
dangerous situation in Manchuria and for the courage 
to face it. At the same time a vigorous initiative on 
the part of American finance helped much towards 
strengthening American prestige in the Orient. The 
.Manchurian bank question marked the beginning of 
negotiations which led to the organization of an Ameri- 
can group, the conclusion of the currency loan and the 
formation of an international syndicate. The United 



UNITED STATES 211 

States Government had recognized that it could not be 

• 

of any real service to China except through its coopera- 
tion with other powers. When, therefore, in May, 1909, 
the British, French and German financial groups were*" 
about to conclude an agreement for the construction of 
the Hukuang Railways, the United States demanded 
admission, last not least in view of the fact that the 
Hukuang loan reopened the question of custom^ revision 
in which the American Government was keenly inter- 
ested.^ To this Willard Straight remarks : ^^ " In 
order, therefore, that the United States might be entitled 
to a practical, and not merely to a theoretical, voice in 
this matter, as well as to assure to American manufac- 
turers a share in the profits of Chinese railway construc- 
tion and the business arising therefrom, it was essential 
that representative American capitalists should partici- 
pate in the Hukuang loan. The Department of State 
offered this opportunity to the bankers already interested * 
in the loan proposed by Mr. Tang Shao Yi and the 
American Group was organized, creating an instnmient 
which it was hoped might enable the Administration not 
only to further the interests of American trade, but 
effectively to assist China in obtaining the consent of 
the powers to the customs revision she so greatly 
desired." 

20 See " Foreign Relations," 1909, page 160. 
2^ See Straight, op. cit., page 127. 



212 FOREIGN FINANCIAL CONTROL IN CHINA 

The Administration's point of view and interest in the 
matter finds an excellent illustration in the telegram 
which President Taft sent to the Prince Regent of China 
on July 15th, 1909. President Taft writes: " I am 
disturbed at the reports that there is certain prejudiced 
opposition to your Government's arranging for equal 
participation by American capital in the present railway 
loan. To your wise judgment it will of course be clear 
that the wishes of the United States are based, not only 
^lpon China's promises of 1903 and 1904, confirmed last 
month, but also upon broad national and impersonal 
principles of equity and good policy in which a regard 
for the best interests of your country has a prominent 
part. ... I have an intense personal interest in making 
the use of American capital in the development of China 
an instrument for the promotion of the welfare of China, 
and an increase in her material prosperity without en- 
tanglements or creating embarrassments affecting the 
growth of her independent political power and the preser- 
vation of her territorial integrity." 

The admission of the American group to the Hukuang 
loan and the various international loan negotiations will 
be subject matter of the following chapter. The reason 
for the ultimate withdrawal of the American group 
from the international combine, however, is a matter 
of strictly American policy, which therefore requires our 
immediate attention. ^ The American Banking group 



UNITED STATES 213 

withdrew, due to President Wilson's refusal to continue 
the moral support of the Government. In support of 
his refusal, President Wilson gave in part this state- 
ment to the press : ^^ " The conditions of the loan seemi* 
to us to touch very nearly the administrative independ- 
ence of China itself; and this administration does not 
feel that it ought, even by implication, to be a party to 
those conditions. The responsibility on its part which 
would be implied in requesting the bankers to undertake* 
the loan might conceivably go the length in some un- 
happy contingence of forcible interference in the finan- 
cial, and even the political affairs of that great Oriental 
State, just now awakening to a consciousness of its 
power and of its obligations to its people. The condi- 
tions include not only the pledging of particular taxes, 
some of them antiquated and burdensome, to secure the 
loan, but also the administration of these taxes by 
foreign agents. The responsibility on the part of our 
government implied in the encouragement of a loan thus 
secured and administered is plain enough and is obnox- 
ious to the principles upon which the government of 
our people rests. . . . Our interests are those of the 
open door — a door of friendship and mutual advantage. 
This is the only door we care to enter." 

President Wilson's objections were exclusively directed 
against certain "control" provisions, which will be 

2»See Straight, op. cit., page 159. 



214 FOREIGN FINANCIAL CONTROL IN CHINA 

analyzed in the following chapter. His motives were 
based upon the desire to be of a genuine friendship and 
of an ultimate benefit to China as well as to America. 
They expressed a high regard for the sovereign rights 
of China. Yet the President's action has found criticism 
coming from American quarters closest in contact with 
the Chinese situation. 

Mr. Rockhill, a short time before his death, in 19 14, 
made the following comment : ^^ " Before retiring 
from the scene of activity in China our Government, in 
1909, made one more attempt to maintain the policy 
of the ' open door ' and justify the expectations of the 
discoverers of the panacea called ' dollar diplomacy,' 
by securing American financial participation in several 
important loans which the Government of China was 
seeking to negotiate with various foreign banks. I will 
not dwell on the stirring incidents which marked the 
fleeting appearance of America in the field of finance 
and politics in China, but I cannot pass it by without 
mention of the permanent moral benefits it brought us, 
the practical assistance it rendered China while it lasted, 
in defending her rights and interests, and the profound 
regret of China and her friends when, moved by idealist 
views and imperfect information, the present administra- 
tion at Washington saw fit, in the spring of last year, 
to withdraw its support from the American banks. 

23 Sec " Far Eastern Review," Vol. 11, page 229. 



UNITED STATES 21$ 

While declaring that ' our interests are those of the open 
door, a door of friendship and mutual advantage, this 
is the only door we care to enter,' it declined to take 
a step to show the one or to secure the other. I only 
know of one blow equally heavy which has been dealt 
our interests, our prestige, and our influence in China: 
it was the cancellation, in 1905, of the concession of the 
American-China Development Company. ... In con- 
clusion it seems clear to me that so long as we shut our 
eyes to the undoubted fact that, in the East at least, 
from Stamboul to Tokyo, politics, finance, and trade go 
hand in hand, and that neither the profits of trade can 
be fully reaped nor our influence and prestige be ade- 
quately upheld without incurring the responsibilities 
incident to political and financial activity, we must be 
content to play a modest, effaced role in the Far East, 
unworthy, in my opinion, of our great country and its 
vast interests in the Pacific." 

" Dollar diplomacy," mentioned by Mr. Rockhill, has 
been defined by Mr. Willard D. Straight as the " logicaF 
manifestation of our national growth, and the rightful 
assumption by the United States of a more important 
place at the council table of nations. The new policy 
aims not only to protect those Americans already en-* 
gaged in foreign trade but to promote fresh endeavor 
and by diplomatic action pave the way for those who 
have not yet been, but who will later be, obliged to sell 



2l6 FOREIGN FINANCIAL CONTROL IN CHINA 

either capital or goods abroad." ^* Mr. Straight, repre- 
sentative of the American group, was a most energetic 
promoter of the international syndicate. He wrote in 
igj2;25 « j^ jg ^Q China's interest that this combina- 
tion should be maintained, and it is to the interest of 
China as well as of the United States, that we should 
retain our present position therein. China's great prob- 
lem to-day is that of finance. It is to her advantage 
that we are entitled to a practical voice in its solution, 
and it is to the advantage of American trade that the 
United States continue to be an active party in Chinese 
loan negotiations." 

A similar stand has been taken by the American Asso- 
ciation.^® " The policy of the United States Govern- 
ment in discouraging the investment of American capi- 
tal in Chinese railways and in loans to the Republic has 
been detrimental to our merchants, but as the adminis- 
tration gains a clearer view of the situation in China and 
begins to recognize the things that must be done if the 
United States is to share in this vast trade area, there 
are possibilities of some modifications of this policy 
which is believed to have been put forth without suffi- 
cient investigation and, at that, on sentimental grounds. 
This Association should use every means in its power 
to awaken the Government in Washington through 

2* See Straight, op. cit, page 121. 
25 See Straight op. cit, page 157. 
2«See "Far Eastern Review," VqI. ii, page 360. 



UNITED STATES 217 

whatever means it can find, to the necessity for a more 
vigorous policy in China to secure for us and to hold 
open when secured as liberal advantages for the extension 
of our trade as are now enjoyed by other nationalities." 

Meanwhile American finance, under the leadership of 
the American International Corporation, has attempted 
to undertake developments in China independently and 
without government support. In doing so the Corpora- 
tion wanted to avoid transactions clothed with any 
political character, adhering strictly to business lines. In 
their recent contracts for railways in Central China th^ 
American financiers propose to proceed on a new basis.^'' 
The Chinese Government was to remain owner of thf 
lines constructed and would issue the bonds. Since the 
Chinese have not as yet a sufficient number of engineers 
and technical railway men to construct and operate the 
lines arrangements were to be made whereby the Chinese 
Government will secure the services of American experts 
to assist them in the management of the new roads. For 
services in financing and in directing operation the Cor^ 
poration would receive a certain percentage of the profits 
in operation. 

The latest developments indicate a return of the United 
States Government to the policy of approving loans by*" 
American bankers to China.^® The bankers will give 

27 See Journal of the American Asiatic Association, Vol. XVI, No. 
12, pages 373 ff. 
«« Sec New York Times, July 30, 1918. 



2l8 FOREIGN FINANCIAL CONTROL IN CHINA 

assurance '* that they will cooperate with the Govern- 
ment and follow the policies outlined by the Department 
of State." While the Government assures "that, if 

^the terms and conditions of the loan are accepted by 
this Government and by the Government to which the 
loan is made, in order to encourage and facilitate the 
free intercourse between American citizens and foreign 
states which is mutually advantageous, the Government 
will be willing to aid in every way possible and to make 
prompt and vigorous representations and to take 
every possible step to insure the execution of equitable 
contracts made in good faith by its citizens in foreign 
lands." It is also " hoped that the American group will 
be associated with bankers of Great Britain, Japan and 
France." 

A very important point is the hoped for financial 

* cooperation between the United States and Japan. The 
American-Japanese agreement of November 2, 19 17, 

*bids fair to be the foundation for a financial cooperation 
between the two countries in China.^^ It has removed, 
in the words of Mr. Lansing, " a feeling of suspicion 
as to the motives inducing the activities of the other 
in the Far East, a feeling which, if unchecked, promised 
to develop a serious situation." 

The two governments furthermore explicitly " deny 
that they have any purpose to infringe in any way the 

2» See end of Chapter " Japan." 



UNITED STATES 219 

independence or territorial integrity of China, and they 
declare furthermore that they will always adhere to the 
principles of the so-called * open door ' or equal oppor- 
tunity for commerce and industry in China." In fact, 
the reaffirmation of the " open door " policy and the 
introduction of a principle of non-interference with the 
sovereignty and territorial integrity of China are reassur- 
ing factors in the Far Eastern Question for the reason 
that both Japan and the United States, by this declara- 
tion, bind themselves to see that China will obtain a 
fair deal, not only at the hands of other nations, but 
from themselves as well. 



CHAPTER VIII 



INTERNATIONAL CONTROL 



International financial competition in China, with 
its struggle for " spheres of interest," and national " con- 
trol," has during later years gradually given way to inter- 
national cooperation and international control. An 
Anglo-German agreement between the Hongkong-Shang- 
hai Bank and the Deutsch-Asiatische Bank for mutual 
participation in administrative and railway loans to China 
had, as we have seen, existed previous to the " battle of 
concessions." The first financial transactions done in 
* common under this agreement were the two Chino-Japan- 
ese War indemnity loans of 1896 and 1898, of Li6,ooo,- 
000 each, which were paralleled by a Franco-Russian loan 
of 400,000,000 francs of 1895.^ ^11 three loans were 
secured by the Maritime Customs Revenue administered 
by the International Maritime Customs Service.^ The 
4lusso-French loan enjoyed an additional guarantee from 
the Russian Government while the Anglo-German loan 
of 1898 was charged upon certain additional likin rev- 
enues which were also collected by the International 

1 Sec " China Year Book," 1913, page 332. 

2 Sec Chapter L 

220 



INTERNATIONAL CONTROL 221 

Maritime Customs Service. To this the British Repre- 
sentative refers under March i8, 1898, as follows:^ 
" The only point of other than financial or commercial 
interest is the provision for the placing under the control 
of the Inspector-General of Maritime Customs the likin 
revenues pledged as security, for this may have import- 
ant future results, as in the case of every other measure 
likely to benefit their coimtry, the Chinese Government 
has refused to take this step imtil forced thereto by 
necessity." 

Under the part control of the Maritime Customs Serv- 
ice falls furthermore the Boxer Indemnity-Service, since* 
payments are secured upon the balance of the revenues 
of the Maritime Customs after pa)nment of preexisting 
charges, upon the Native Customs Revenues at open 
ports, and the Salt Gabelle.* The amortization was to 
commence the first of January, 1902, payable annually,* 
and shall be finished at the end of the year 1940. The 
Anglo-German loan of 1898 was followed in February,' 
1905* by the final exchange-adjustment of the Boxer 
Indemnity, amounting to Li ,000,000 and secured by the 
Peking octroi and Shansi likin. *^ 

That the collection of the revenues upon which these 
first three international loans and the Boxer Indemnity ' 
were pledged fell imder foreign " control " was, as we 

» See British Blue Books, " China," No. CIX, 1899, No. 59. 
* See " China Year Book," 1913, page 333. 
« Ibidem, 



222 FOREIGN FINANCIAL CONTROL IN CHINA 

have seen due to the fact that the Maritime Customs 
were at that time under foreign expert supervision. 
This supervision had become a stable and well founded 
institution and was generally recognized as a source of 
great benefit to foreigners as well as to Chinese. Few 
difficulties were therefore encountered when these loan 
services thus fell automatically imder foreign " control." 
But the case was entirely different with " control " em- 

*bodied in the various railroad agreements, the first of 
which was that made by the Chinese Government in 
1898, with the British and Chinese Corporation, for a 
loan to the Imperial Railways of North China. The 

-control stipulations of most of the railroad agreements 
were exceedingly severe, as we have demonstrated in the 
preceding chapters. The lenders, besides securing a first 

•mortgage on the railways, were entitled to a share in the 
profits and the management of the lines. This form 
of " control " was naturally a great blow to Chinese 
pride and it therefore found considerable opposition 
from many quarters. The first international railway 
loan agreement now altered conditions substantially, 
^'his was the Anglo-German Tientsin-Pukow loan agree- 
ment concluded in 1908 by the same banks which had 
arranged the indemnity loans of 1896, 1898 and 1902. 
The signature of the Tientsin-Pukow agreement, 
says Mr. Straight,® ** marked the first recognition by the 

* See Straight, op. cit., page 132. 



INTERNATIONAL CONTROL 223 

banks of the increasing efficiency of the * Young China * 
party. These men demanded the radical modification of 
the old loan terms. They considered ' control ' subver- 
sive of China's sovereign rights and, flattered by the 
blandishments of rival foreign interests, they were deter- 
mined to exact from the world a consideration similar 
to that accorded Japan after years of patriotic self- 
sacrifice and conscientious endeavor. The avowed pur- 
pose of these officials to weaken the hold of the foreigner 
on China was heartily applauded throughout the prov- 
inces. It served as a patriotic issue on which an appeal 
could be made to the masses and a cloak under which 
the provincial gentry could cover their real purpose, 
which was to restrict the extension of the Peking Gov- 
ernment's authority by railways built with foreign loans, 
or otherwise, and their determination that if foreign 
loans were made, the chances for peculation should not 
be monopolized by the metropolitan mandarins." 

The agreement of January 13th, 1908,^ sanctioned the 
flotation of a loan of L5,ooo,ooo at five per cent, issued 
to the Chinese at 93 and to the public at 98^ for a term 
of 30 years, repayment to commence at the end of 10 
years. Of the total loan L 1,850,000 was issued by the 
Hongkong and Shanghai Bank and L3, 150,000 by the 
Deutsch-Asiatische Bank. The line was accordingly 

^ See " Far Eastern Review," Supplement, Nov., 1909, for text of 
the Agreement. 



224 FOREIGN FINANCIAL CONTROL bJN CHINA 

subdivided in two sections. The northern pdirtion from 
Tientsin extended to the Grand Canal, a distance of 385 
miles, and was built by German capital. The southern 
portion extended from the Grand Canal to Pukow, 
2363^ miles, and was built by British capital. Accord- 
ing to Article 9 the loan is secured by a first charge upon 
Tikin and internal revenues of Chihli, Shantung, and 
Kiangsu Provinces, amounting to a total of 3,800,000 
Haikwan taels a year. 

Regarding administration or " control "of the line. 
Article 17 of the agreement provides that: " The con- 
jjtruction and control of the railway will be entirely in 
the hands of the Imperial Chinese Government. For 
the work of the northern and southern sections respec- 
tively the Chinese Government will select and appoint 
fully qualified German and British Chief Engineers, 
acceptable to the syndicate. These two Chief Engineers 
shall be under the orders of the Managing Director, or 
his duly authorized representative, and will carry out 
all the wishes of the Railway Administration with 
regard to the plan and construction of the line. They 
must pay all due respect to the Director General and 
the Managing Director. The terms of their respective 
agreements will be arranged by the Director General on 
his sole authority.'' 

To ensure Chinese control after completion Article I 
^ concludes: " On the completion of the line the Imperial 



INTERNATIONAL CONTROL 225 

Chinese Government will appoint an Engineer-in-Chief, 
who during the period of the loan shall be a European 
without reference to the syndicate/' 

By 1910 the money was exhausted and it became 
necessary to raise a supplementary loan of L4,8oo,ooo, 
divided into two equal parts, to complete the work. 

In the Tientsin-Pukow Agreement of 1908, it was 
for the first time stipulated, that in case of default on 
the loan service, the hypothecated revenues should be 
administered by the Maritime Customs Service. The^ 
principle of joint management was abandoned. No 
authority was conferred by the Tientsin-Pukow con-^ 
tract upon the auditors of the banks to stop the with- 
drawal of funds in case the Chinese officials were found 
guilty of peculation. 

" These terms," says the Far Eastern Review, " were 
distinctly favorable to China, and the precedent set has 
been seized upon and will be used to obtain better terms 
in future agreements. The Board of Posts and Com- 
munications are convinced that the management of roads 
should be in the hands of the Government. And in the 
hands of the Government they should be exceedingly 
profitable, though everything depends not only upon 
sagacious management, but upon scrupulous treatment of 
earnings. The European bankers' sole and only object 
in endeavoring in the past to obtain supervision over 
railway management and finance was to see to it that 



226 FOREIGN FINANCIAL CONTROL IN CHINA 

all moneys were honestly dealt with and the interests 
of bondholders protected. The opponents of what are 
now described as ' the Tientsin-Pukow terms * declare 
that the way has been deliberately left open for ruth- 
less squandering and peculation in railway fimds. It 
is therefore all the more incumbent upon the railway 
administration to demonstrate to the world that they 
are capable of controlling their officials and the funds 
that are destined to pass through their hands." ® 

The Chinese officials, however, did not ftdfiU the 
expectations and trust placed in them. Mr. Straight 
informs us that : ® " from the commencement of the 
construction of this line there have been numerous scan- 
dals, the most flagrant instance resulting in the degrada- 
tion of the director general and a number of his sub- 
ordinates. The cost of construction has far exceeded 
even the most liberal estimates, and the loan service will 
therefore constitute a heavy charge on the revenues of 
the line.'' 

" Owing to the unsatisfactory operation of the so- 
called ' Tientsin-Pukow ' terms," continues Mr. Straight, 
'* negotiations were conducted in the winter of 1908- 
1909 between the British, German and French Groups 
and their respective Governments with a view to reach- 
ing an understanding as to the degree of * control ' to 

8 See " Far Eastern Review," Vol. IX, page 336. 
® See Straight, op. cit., page 133. 



INTERNATIONAL CONTROL 227 

be demanded from China as a condition precedent to 
future loans." These negotiations were for a loan to 
construct both the Canton-Hankow and Hankow- 
Szechuan line or, as they are called collectively, the 
Hukuang Railways. At first it was intended that there 
should be Anglo-American cooperation; but America"* 
refused to have anything to do with the project in 1904. • 
Later on, in 1905, France and England came to an 
arrangement with regard to this line. Little, however, 
was done until, in 1908, the German group insisted upons 
participation in said enterprise. ^^ Diplomatic protest 
and recriminations followed owing to the willingness 
of the Germans to agree to " Tientsin-Pukow " terms, 
while the British insisted upon more effective " con- 
trol." ^^ The controversies finally resulted in a com- 
promise imder which the British and French associates 
ccmibined with the German group to negotiate the I 
Hukuang loan jointly. The agreement was initialed on 
the sixth day of June, 1909, and the " control " pro- 
visions accepted by the banks were similar to those em- 
bodied in the Tientsin-Pukow Agreement, as we shall see 
presently. 

At this point the United States interfered. The 
American legation in Peking forwarded a protest to the » 
Grand Coimcilor, Chang Chih Tung, against the rati- 

10 See Chapter II (72). 

*^ See Straight, op. cit, page 133. 



228 FOREIGN FINANCIAL CONTROL IN CHINA 

fication of the preliminary agreement on the ground 
that American financiers had secured, in 1904, a promise 
from the Chinese Government that in the event of the 
floating of foreign loans for the Hupeh section of the 
Szechuan road China would consult first the United 
States and Great Britain.*- Inasmuch as the United 
States had not officially relinquished her right to partici- 
pation, the American Government now demanded admis- 
sion of an American group composed of Messrs. J. P. 
Morgan and Co., Kuhn, Loeb and Co., the First National 
Bank, and The National City Bank, all of New York. 
The group was represented by Mr. Willard D. Straight. 
Mr. Knox supported his demand by pointing to the 
" menace to foreign trade likely to ensue from the lack 
of proper sympathy between the powers most vitally 
interested in the preservation of the principle of equality 
of commercial opportunity,'' adding that " the Govern- 
ment of the United States regards full and frank 
cooperation as best calculated to maintain the open door 
and the integrity of China and . . . that the formation 
of a powerful American, British, French and German 
financial group would further that end." ^^ 

It was last not least due to the personal interference 
of President Taft,^^ that the Chinese agreed to provide 
for equal participation of America in the railway loan, 

12 See " Foreign Relations," 1909 (Vol. 5704), pages 144 flf. 
18 See "Foreign Relations," 1909 (Vol. 5704), page 152. 
1* See preceding chapter. 



INTERNATIONAL CONTROL 229 

and that " Tripartite Banks " consequently invited the 
American group, in May, 1910, to join them in the com- 
bination which they had effected the year before. This 
invitation was accepted and an intergroup agreement 
was signed in November, 1910.^** The final agreement 
for the Hukuang loan was signed with Qiina by represen- 
tatives of the four nation syndicate on May 20th, 191 1, 
on which day the preliminary agreement of June, 1909, 
was sanctioned with the addition of a few provisions 
referring to American participation, and an increase of 
the amount to L6,ooo,ooo.^® 

The Imperial Chinese Government Five Per Cent. 
Hukuang Railway's Sinking Fimd Gold Loan of 
L6,ooo,ooo was to the amount of L5oo,ooo for the re- 
demption at a premiimi of 2j4 per cent, of certain un- 
redeemed Gold Bonds of the total par value of 
$2,222,000, issued by the American China Development 
Company on behalf of the Chinese Government, and the 
balance for the construction of a government railway in 
the Provinces of Hunan, Hupeh, and Szechuan, com- 
prising two sections: i. The Hupeh-Hunan section of 
the Canton-Hankow Railway, being a line from Wuchang 
south through Yochow and Changsha to a point on the 

15 See " Far Eastern Review," Vol. XIII, page 83. 

1® For the text see " Far Eastern Review," Supplement, Aug., 191 1. 
See also U. S. Daily Consular Reports, Oct. 20, 1913, No. 245. For 
the preliminary agreement of 1909 see "Foreign Relations," 1909, 
pages 152 and 200. 



I 



230 FOREIGN FINANCIAL CONTROL IN CHINA 

southern boundary of Hunan, there connecting with the 
Kwangtung section. This section of a total length of 
900 kilometers is under a British engineer in chief. 2. 
The Hupeh section of the Hankow-Szechuan line, from 
Kwangshui, on the Peking-Hankow line, through 
Siangyang and Chingmen to Ichang, 600 kilometers 
under a German engineer in chief, and from Ichang to 
Kweichowfu in Szechuan, 300 kilometers under an 
American engineer in chief. The question of control is 
regulated in Article XVII : " The construction and con- 
^trol of the railway lines shall be entirely and exclusively 
vested in the Imperial Chinese Government. For the 
work of construction the Imperial Chinese Government 
)will select for appointment a fully qualified British 
Engineer-in-Chief for the Hupeh-Himan section of the 
Canton-Hankow railway line to Yichangshien, and a 
fully qualified German Engineer-in-Chief for the 
Kwangshui-Ichang section of the Szechuan-Hankow 
railway line, with a fully qualified American Engineer- 
in-Chief for the section of that line from Ichang to 
Kweichowfu, at the same time informing the Banks of 
the selection made/' At Kweichow the system was to 
^ connect with the future Kweichow-Chungking-Cheng^u 
section of over 500 miles which had been reserved for 
French capital, as no share of the construction of the 
system provided for by the Hukuang agreement was 



INTERNATIONAL CONTROL 231 

allotted to the French group. ^^ Article XVIII concedes 
to the British and Chinese Corporation and the Deutsch- 
Asiatische Bank the exclusive piwchasing rights for the 
entire system, including the American section, on which 
they are allowed a purchasing commission of five pei • 
cent. There is, however, a gentleman's compact between 
the four groups of May 23rd, 19 10, that fair play will 
be observed and that the purchasing agents will " make 
all proper provision for the receipt on an absolute basis 
of equality of tenders from British, German, French, 
and American manufacturers." ^® 

The loan of six million pound sterling was according 
to Article IX secured in respect t6 both principal and 
interest, as a first charge upon Hupch and Hunan provin- 
cial salt and likin revenues and Hupeh rice tax amount- 
ing to a total of 5,200,000 Haikwan taels a year. These 
revenues arc declared free from all other loans, charges 
or mortgages. It is furthermore stipulated that " so 
long as principal and interest of this Loan are regularly 
paid, there shall be no interference with these Provincial 
revenues; but if principal or interest of the Loan be in 
default at due date, then, after a reasonable period of 
grace, likin and other suitable internal revenues of the j 
Provinces of Hupeh and Hunan sufficient to provide the 

1^ See Qiaptcr IV ; see also " Far Eastern Review," Vol. 9, page 

305. 
i« See '* Foreign Relations," 1910, page 283. 



{ 



232 FOREIGN FINANCIAL CONTROL IN CHINA 

amounts above stated shall forthwith be transferred to, 
and administered by, the Imperial Maritime Customs in 
the interests of the bondholders/' 

The bankers had acquiesced in these lenient control 
provisions, " feeling that the pimishment inflicted after 
the Tientsin-Pukow frauds and the surveillance of the. 
National Assembly over the expenditure of loan funds, 
as well as the difficulties by which the central govern- 
ment was confronted, justified them in confirming the 
" control " provisions of the original agreement." ^* 
That the Chinese, on the other hand, were able to secure 
" Tientsin-Pukow " terms in the original Hukuang 
agreement — despite the fact that more stringent con- 
trol was needed — was due to the rivalry between the 
British and German groups. The international syndi- 
Icate was furthermore confronted by an ever increasing 
** anti-loan '' agitation in the provinces through which 
the Hukuang lines were to be constructed, which obliged 
Chang Chih Tung — especially in the face of the opposi- 
tion by the National Assembly — to adhere as strictly 
as possible to the terms of the original contract. But 
notwithstanding the multitude of good reasons for a 
lenient '' control '' the bankers should soon be forced to 
have the security revised, the arrangements for the bank- 
ing of funds reconsidered and a change instituted with 
regard to the auditors. ^ It was the Chinese revolution 

1® See Straight, op. cit, page 135. 



INTERNATIONAL CONTROL 233 

which necessitated the reconsideration of several points 
in the agreement. Says the Far Eastern Review,^^ " At 
the time the agreement was being negotiated an effort 
was made to have the railway lines to be built pledged as 
collateral security, but the authorities resisted overtures 
in this regard chiefly owing to the popular opposition 
to placing what are described as ' sovereign rights ' in 
the hands of the foreigners. The revolution produced 
such changes in the value of the security already pledged, 
however, that reconsideration was necessary. One of 
the first steps to be taken by the revolutionists was to » 
declare the abolition of likin, and though that was event- 
ually revised likin collections fell off almost entirely as 
a result of the dislocation of the machinery of tax col- 
lection. Other revenues pledged also suffered. . . . The 
Government protested that the taxes were unaffected, but ^ 
after much argument it was agreed that the property 
and materials of the lines should be specially given as a 
provisional guarantee that the likin was unimpaired." 
In Article 14 it was stipulated that certain funds should 
be placed with certain Chinese banks. The credit of 
all native banks being seriously affected through the | 
revolution the Chinese Government and the representa- 
tives of the '' Quadruple Banks " arranged in 1913 that 
the loan funds should be deposited in the Hongkong 
and Shanghai Bank, Deutsch-Asiatische Bank, Banque 

20 " Far Eastern Review," Vol. IX, page 454. 



234 FOREIGN FINANCIAL CONTROL IN CHINA 

de rindo-Chine, and the International Banking Cor- 
poration, instead of with the native banks.^^ Finally 
China undertook of her own accord to engage experi- 

lenced foreign accountants for the various railway sec- 
tions. 

The construction of the Hukuang railways had made 

Ibut little progress owing to the political and financial state 
of China during and following the revolution, which 
was unfavorable to railway construction. The revolu- 
tion has also set a halt to the issue of the socalled Cur- 
rency Loan. On April 15th, 191 1, an agreement had 

>been signed between the President of the Ministry of 
Finance on behalf of China, with the " Four-Power " 
syndicate, authorizing the issue by the foreign bankers 
of a Five Per Cent. Sinking Fund Gold Loan for an 
aggregate amount of Lio,ooo,ooo. The issue price of 
this loan was to be 95, and of the L9,500,ooo which was 
actually to be handed over to the Chinese Government. 

t Li, 000,000 was earmarked for the industrial develop- 
ment of Manchuria, while L8,50o,ooo were to be devoted 
to the reform of a chaotic currency that had always been 
at the root of China's financial troubles.** The loan 
was to be secured on certain revenues appertaining to 

I the three Manchurian provinces, and on a recently im- 
posed surtax upon salt. 

ai See " China Year Book," 1914, page 234- 
" Sec " China Year Book," 1912, page 288. 



INTERNATIONAL CONTROL 235 

The question of. " control " should prove again the 
greatest stumbling block in the path of negotiations. To 
quote Mr. Straight : ^^ " Practically the only loans 
previously falling " within this category (" government "^ 
or " administrative " loans) had been required to pay 
indemnities abroad and there was no necessity therefore 
that the lenders should exercise " control " over their 
expenditure. The currency loan, however, was to carry 
out a definite program and not for general administrative 
purposes. The four banking groups now acting in har- 
mony believed some form of supervision to be necessary, 
and it was thought that the " control " machinery devised 
for railway loans, could, with certain modifications be 
utilized for assuring the proper applications of the bor- 
rowed funds under the currency reform program. 

" The Chinese had reluctantly agreed to various con- 
trol provisions in railway loan agreements, but they feared ^ 
that to admit the principle of supervision over admin- 
istrative expenditures would be to pave the way for 
foreign control over China's general finances. An 
arrangement was finally made, however, whereby China* 
submitted to the groups her program of currency reform 
for their acceptance, and agreed to expend the loan funds 
only in accordance therewith, to publish quarterly reports 
of disbursements made, and to engage a foreign expert 
to assist the Bureau of Currency Reform. 

** Sec Straight, op. cit, page 135. 



236 FOREIGN FINANCIAL CONTROL IN CHINA 

" The Loan has not been issued but it is open to ques- 
tion whether this ' control/ in practice, would have pre- 
vented peculation, and insured the proper expenditure 
of loan funds, and the effective operation of the cur- 
rency reform program." 

So much for the international loans preceding the 
revolution. At the outbreak of the revolution in Octo- 

iber, 191 1, the Empire faced an annual deficit variously 
estimated from twenty to seventy million taels.^* The 
imperial authorities at Peking soon realized that the 
scarcity of funds made offensive military operations im- 
possible. Their general inability to cope with the situa- 

y tion, together with their loss of revenue from the revolted 
provinces, capture of Government funds, and the whole- 
sale embezzlement of moneys by officials, brought them 
face to face with bankruptcy. Various foreign sources 

^were therefore approached regarding loans to the im- 
perial Government: a Baron Cottu for francs 
150,000,000, certain American financiers for L 1,000,000, 
on the security of the Peking-Kalgan Railway, a British- 
Belgian-French Syndicate under Russian influence for 
taels 90,000,000, Germany for $20,000,000, and last not 
least the ** Four- Power " Syndicate for various sums, 
^he Provincial Assemblies and Republicans in the South 

2* The financial history of the Revolution is given in the Chinese 
Year Books of 1913 and 1914 and has also been recorded by George 
Bronson Rea in the " Far Eastern Review," Vols. VIII and IX, 
passim. 



INTERNATIONAL CONTROL 237 

immediately raised an outcry against any possible loans, 
threatening a boycott against the nations furnishing the / 
funds. This caused the bankers to hesitate and consult 
with their Governments through their respective lega- 
tions. The foreign legations in Peking were at that, 
time in favor of the North. In view of the fact that 
the British interests predominated in China, the Powers 
deferred to the wishes of Great Britain in saying whether 
the Manchus and Yuan Shih Kai should receive finan- 
cial support or not. And it was " generally understood 
that up to this juncture, the British Minister at Peking, 
Sir John Jordan, fully agreed with his colleagues in that* 
Yuan, as the only man to save the situation, should re- 
ceive foreign -financial aid." ^' But "to the repeated 
recommendations of the legations in support of Yuan, ^ 
the Chancellors answered that as the South was entirely 
tmder Republican rule, any support to the North would 
result in retaliatory trade boycotts, destruction of 
property, and possible anti-foreign uprisings, with con- 
sequent massacre of all foreigners in the interior. In 
view of this, the Governments could not sanction any 
financial assistance to the other side, and China would 
have to solve its internal problem unaided." ^^ The 
neutrality proclamation of the powers following shortly v 
afterwards sealed the doom of the Manchu Government, 

2» See " Far Eastern Review," Vol. 8, page 345. 
«• Sec " Far Eastern Review," Vol. 8, page 345. 



238 FOREIGN FINANCIAL CONTROL IN CHINA 

the collapse of their loan negotiations convincing them 
of the hopelessness of their cause. 

But the powers, in pursuance of their policy of main- 
taining strict neutrality, would not countenance loans 
I to the Revolutionary Government. The latter was 
I therefore compelled to close a deal with Japan, which 
Power was ready to widen her interests in China, and 
accordingly prepared to sign the agreement for the 
hypothecation of the properties of the China Merchants* 
Steam Navigation Company. But, " When the great 
^ British shipping and commercial companies realized that 
their interests were in danger and the Republicans were 
playing into the hands of their formidable Japanese 
rivals, who by securing a lien on the China Merchants' 
properties would be masters of the river and coastwise 
shipping trade, then the law of self-preservation over- 
shadowed all other considerations, and the demand was 
made on the British financial group to break the dead- 
lock and advance the funds to Sun Yat-sen, to prevent 
the China Merchants* Steam Navigation Company pass- 
ing into the control of the Japanese. And the British 
group with the support of its Government acted.** ^^ 

At that time the Chinese situation had been cleared 
up considerably. The Manchus abdicated on Feb. 12th 
and the Chinese Government was consolidated under the 
leadership of Yuan Shih Kai with the active support 

*T Sec " Far Eastern Review," Vol. 8, page 374. 



INTERNATIONAL CONTROL 239 

from Sun Yat-sen and the South. Immediately there- 
after the proposition was made to the Quadruple Syn- 
dicate that the embargo on foreign loans be raised and 
permission given to advance funds to the new govern- 
ment. To this the syndicate agreed and on Feb. 28, 
19 1 2, the Hongkong and Shanghai Banking Corporation, 
acting on behalf of the quartette, made an advance of 
taels 2,000,000 to the Chinese Government at Nanking 
— last not least stirred to action by the British shipping 
interests, as suggested above. 

The deadlock had been raised on the previous day, i.e., 
on Feb. 27th, when the representatives of the syndicate* 
at the invitation of Mr. Tang Shao Yi, representing the 
republican government, discussed with him the question 
of a general Reorganization Loan. According to Mr. 
Straight " Mr. Tang stated the immediate requirements 
of the Chinese Government, and requested the repre- 
sentatives to ask their groups to finance the same. In 
addition he discussed the Chinese revenues available as 
security for a large loan to reorganize the Chinese 
Administration, and to initiate a scheme of commercial 
and industrial development. He asked the representa- 
tives how much China could borrow on this secimty, and 
finally, himself suggested the figure of L6o,ooo,ooo 
which he wished the banks to loan in five annual install- 
ments of Li 2,000,000 each/''* As security for the 

** Set Straight, op. cit, p^gt IS7- 



240 FOREIGN FINANCIAL CONTROL IN CHINA 

proposed advances he offered to issue sterling treasury 
bills, to be secured as a secondary charge upon the Salt 
Gabelle. The advance of taels 2,000,000 of the follow- 
ing day was made at Mr. Tang's request to meet the 
urgent requirements of the Nanking authorities. 

Negotiations for further advances were proceeding 
when the Peking mutiny, followed by similar outbreaks 
in other parts of the North, threatened to involve the 
whole of the North in anarchy. It was not until March 
2nd that the situation in Peking was once more in hand, 
and on that day the syndicate was requested to make 
further advances. To this request the bankers agreed, 
making an advance of taels 1,100,000 on March 7th. 
On March 9th the syndicate received a letter from the 
President which is of particular importance in the Hght 
of subsequent events. 

According to this letter, it was understood and 
agreed ^^ " That the banks hold a firm option for the 
provision of the further monthly requirements of the 
Chinese Government for the months of March, April, 
May, June and possibly July and August, which the 
Four Groups have already been requested to finance, 
against the delivery of additional sterling Treasury 
Bills on terms to be arranged. 

" That in consideration of the assistance rendered 
by the groups to China in the present emergency, and 

2» See " China Year Book," 1913, page 350. 



INTERNATIONAL CONTROL 241 

of their services in supporting her credit on the foreign 
markets, the Chinese Government assures to the groups 
(provided their terms are equally advantageous with 
those otherwise obtainable) the firm option of under- 
taking the comprehensive loan for general reorganiza- 
tion purposes, already proposed to them, to be floated 
as soon as possible, and to be applied in the first instance 
to the redemption of the sterling Treasury Bills afore- 
said." 

Every arrangement had been made by the groups to 
continue the payment of the advances agreed upon, when ^ 
on March 14th they received definite information that 
the Premier Tang Shao-Yi was negotiating with a 
nominally Belgian Syndicate for an independent loan. 
And despite the protests of the Groups, Premier Tang^ 
signed the loan on March 14th, subject to the confirmation 
of the National Assembly at Nanking. The European 
Syndicate which undertook the loan consisted of the 
Eastern Bank Ltd. and Messrs. J. Henry Schroder and 
Co., both of London, Messrs. A. Spitzer and Co., Paris, 
The Russo-Asiatic Bank and a Belgian Group com- 
posed of La Societe Generale de Belgique, La Banque 
Sino-Belge, and La Societe Beige de Chemins de Per 
en Chine. The agreement provided for a loan of 
L 1,000,000 at five per cent., issued at 97 (ninety-seven) i 
and redeemable in 12 months, to be followed subse- 
quently by a larger loan, amounting in all to L 10,000,000. 



242 FOREIGN FINANCIAL CONTROL IN CHINA 

It was according to Article LV secured upon the general 
'revenues and specifically upon the property and revenue 
of the Peking-Kalgan Railway. ^^ " The Chinese Gov- 
ernment shall deposit with the Bank, Government Treas- 
ury Bills for one million pounds sterling in amounts of 
ten thousand pounds each. The Bills shall be secured 
by the general revenue of the State, and the payment of 
the principal and interest is further secured by a first 
mortgage on the net income and property of the Peking- 
Kalgan railway." The article of greatest significance 
is No. 15 : "In consideration of the financial assistance 
given by the Bank (Banque Sino-Belge) to the Govern- 
ment under this agreement, the Government engages 
to give a preference to the Bank for such loan or loans 
(future loans) until an aggregate amount of ten million 
pounds sterling shall have been floated through the Bank 
provided the terms offered are equally advantageous to 
those offered by other parties/' 

A comparison of these terms, signed on March 14th 
with the terms of the agreement signed by President 
Yuan on March 9th, reveals a concession of preferential 
rights to both parties, or in other words a breach of 
the earlier contract. According to the Far Eastern 
Review this would indicate : " that the new rulers of 
China adhered to the traditional tactics of playing one 
group against the other in the hope that by such com- 

»o See " China Year Book," 1913, page 351. 



INTERNATIONAL CONTROL 243 

petition China would free herself from any foreign 
monopoly or control of her finances."*^ The premier 
himself gave for an explanation that he was forced to ^ 
arrange the Belgian loan because of an — alleged — 
refusal of the Quadruple Syndicate to make the advances 
he required.^^ But the only true justification for China's \ 
action is to be found in the fact that the price paid by 
the bankers for the Belgian loan was lower than that 
which the four groups were ready to give. 

In addition to the breach of faith the pledging of the 
revenues and property of the Peking-Kalgan Railway, 
was regarded by the four governments concerned as a 
violation of the Anglo-French Peking-Hankow Railway 
Redemption Loan of 1908 and of the engagement entered 
into by Great Britain and China in 1902 that the Peking- 
Kalgan Railway should not be mortgaged for a foreign 
loan.'* 

It must be remarked, in this connection, that there is 
every reason to believe that the loan, although termed * 
a Belgian one, was in fact a Russian affair, for the 
syndicate is identical with that formed by Russia for 
participation in the " Six-Power Syndicate." The pos- 
sible political character of this loan is, according to the 
Far Eastern Review, made clear when it is remembered 
that Russia had for years endeavored to gain control 

•1 See " Far Eastern Review," Vol. 8, page 37S. 
»« See " China Year Book," 1913, page 353. 
»» See " China Year Book," 1913, page 353. 



244 FOREIGN FINANCIAL CONTROL IN CHINA 

of a railway across Mongolia and through the Kalgan 
Pass to the capital.^* 

Furthermore, the signature of the Belgian loan, as 
Mr. Straight remarks, " affected the security for the 
large loan which the groups had been asked to under- 
take — and it carried no guarantee whatsoever that the 
^ funds furnished or to be furnished would be properly 
expended, it increased China's liabilities without insuring 
any increase in the effectiveness of her administration 
and instead of rehabilitating, it was calculated to prej- 
udice her credit." ^' 

For all these reasons the Four-Power Syndicate 
immediately suspended further payments, and refused to 
comply with their side of the agreement unless the so- 
called' *' Belgian " loan was canceled. In their protest 
against this loan and their demand for its cancellation 
the bankers found the active support of their respective 
governments under the leadership of Great Britain. The 
London Foreign Office had put itself on record as opposed 
to any loan coming from sources other than the Quad- 
ruple Syndicate, when it refused its support to the British 
Banks which had taken an interest in the Belgian loan. 
On March 14, the Foreign Office assured the Hongkong 
and Shanghai Bank of its exclusive support during the 
loan negotiations, when requested to do so by said 

8* See " Far Eastern Review," Vol. 8, page 379- 
86 See Straight, op. cit., page 140. 



INTERNATIONAL CONTROL 245 

Bank.^* The justification of the Foreign Office for this 
support was that any other loan " might interfere with 
the temporary arrangements made for financing the 
Chinese Provisional Government, or . . . might con- 
flict with the terms or weaken the security of the large 
loan for reorganization purposes, which your bank and 
the allied French, German, and American groups are 
negotiating, with the full knowledge of their Govern- 
ments/' The Foreign Office likewise recognizes " that 
they are under obligation not only to the Hongkong and 
Shanghai Bank, but also to the governments and groups 
concerned in these advances, not to give their support 
to any other group in negotiating with the Chinese Gov- 
ernment any loan as described above until the large loan 
out of which these advances and the expenses of re- 
organization are to be covered has been successfully 
negotiated, and, above all, until the security on which it 
is to be issued has been definitely settled." 

The standpoint of the English Foreign Office is also 
expressed in the following dispatch : " His Majesty's 
Government and the other governments concerned have, 
from the experience of past years, come to the unanimous 
conclusion that, both in the interests of their own finan- 
ciers and investing public, and also as a safeguard of 
China's credit, it is incumbent on them to prevent, as far 

«6 See British Blue Books, " China," No. 2, 1912, Vol. CXXI, No. 
I, flF. 



246 FOREIGN FINANCIAL CONTROL IN CHINA 

as lies in their power, all possibility of a return to the 
former dangerous policy of unprofitable international 
I competition in China, which only enabled the Chinese 
\ Government to obtain money without adequate guaran- 
tees, and rendered it impossible for the governments in- 
terested to exercise the necessary control over the terms 
of any loans. There can be no doubt that the inter- 
nationalization of future loans would go far to secure 
this desirable end."^^ 

To enforce the broadest possible internationalization 
of Chinese loans, the syndicate decided at this time to 
strengthen its position by inviting the cooperation of 
Russian and Japanese financiers. By this step it was 
^ hoped to secure the absolute unanimity among the six 
Powers possessing the most substantial interests in China, 
to prevent the entrance of unscrupulous financiers and 
the dissipation, by reckless and unchecked borrowing, 
of the nation's tangible securities. Japan at once 
accepted the invitation and designated the Yokohama 
Specie Bank as the official institution through which her 
share of the loans would be negotiated. After a long 
Xhesitation, Russia also signified her willingness to enter 
the combination, " although it has been quite apparent 
that she desired to play a lone hand and push her advan- 
tage through the medium of the Belgo-Russian financial 

»T See " China," No. 2, 1912, Vol. CXXI, No. 7. 



INTERNATIONAL CONTROL 247 

syndicate."^® Russian interests were to be represented 
by the Russo-Asiatic Bank in cooperation with the same 
syndicate as had undertaken the " Belgian " loan. 

The " Belgian " loan had meanwhile been canceled 
upon the strong representations by the foreign ministers, 1 
and the negotiations between the bankers and Mr. Tang 
were resumed on May 3rd. The question of control 
arose immediately. To appreciate the difficulties the 
bankers were obliged to take into consideration, we shall 
avail ourselves of a summary of the situation existing 
at this time, as given by Mr. Straight.^* 

" They (the six groups) had been requested by China 
to furnish roughly 10,000,000 taels or L 1,300,000 a • 
month for six months and to provide other stuns, mak- 
ing the aggregate amount to be advanced 80,000,000 
taels or about L 10,000,000. 

" It would have been impossible to issue a Chinese 
loan at this time except at a figure so low as to prejudice 
the quotations for Chinese bonds already on the market, 
in the hands of the public not of the groups. To fur- 
nish the stuns immediately required therefore the banks 
would have been obliged to discount treasury bills, which 
they would have either had to hold themselves, or dis- 
pose of to a very limited clientele. 

»8 See " Far Eastern Review/' Vol. VIII, page 381. 
»• Straight, op. cit., pages 142 flF. 



248 FOREIGN FINANCIAL CONTROL IN CHINA 

" These advances were required to pay the army, to 
finance the disbandment of superfluous troops, and to 
meet the current expenses of the government. The 
large loan was to be expended to redeem the treasury 
bills, to clear oflf arrears in China's indemnity and loan 
services, and to meet certain pressing outstanding obli- 
gations. Mr. Tang proposed to use the balance to make 
up the loss of likin, which he desired immediately to 
abolish, pending the consent of the powers to an increase 
in the customs tariff. In addition he had certain vague 
schemes for railway construction, afforestation, and the 
establishment of mills of various sorts. 

" For the advances and large loan requested the 
I Chinese Government proposed to pledge the Salt Gabelle 
as security. The service of the Boxer Indemnity is i 
first charge on this revenue. It was estimated, how- 
ever, that it now yields taels 47,000,000 per annum and 
could be increased to at least half as much again if 
honestly collected. 

" The Chinese Government at this time was power- 
less to collect the taxes which it offered as security and 
was unable to meet its indemnity and loan payments, to 
pay troops or to finance its current administrative ex- 
penses and its permanence was by no means assured. 

'' During the course of the negotiations, from Feb- 
ruary to June, the Chinese officials had shown little 
appreciation of the magnitude of their financial task and 



INTERNATIONAL CONTROL 249 

had evinced little ability in dealing effectively therewith. 

" The groups nevertheless had advanced 12,100,000 
taels in order to enable the administration to meet its 
most urgent needs and to prevent the disorders and 
mutinies which it was feared would occur unless funds, 
which the Grovemment could not secure from its own 
people, were obtained. 

" These advances had been made subject to certain 
conditions to insure their proper application to the pur- 
poses for which they were borrowed, yet the Chinese 
officials charged with their expenditure had placed every 
obstacle in the way of a proper and efficient audit, to 
which they had agreed. 

"Patriotic Chinese, proud of their Republic and 
hopeful and confident of its future, may regret the neces- 
sity of including such facts in this statement. These 
men, however, if they be fair minded, must admit that 
the banking groups, no matter how friendly they might 
be to China, would not have been warranted in disregard- 
ing them. 

" Because of these facts the groups were unwilling to 
imdertake the business without the joint support of their 
respective governments. Because of these facts, more- 
over, they deemed it possible to proceed with advances 
and to undertake the reorganization loan only on cer-\ 
tain conditions, which were briefly as follows : 

" I. That the groups should have the right to satisfy. 



2SO FOREIGN FINANCIAL CONTROL IN CHINA 

themselves as to purposes for which funds were re- 
quired. 

" 2. That China should herself create a system of audit 

, in which foreigners should be employed with powers 
not merely advisory, but also executive so as to ensure 
the effective expenditure of loan funds borrowed for 
the purposes specified. 

" 3. That the salt taxes to be hypothecated for the 
service of this loan should be administered either by the 

> existing Maritime Customs organization or by a separate 
Chinese service like the customs, however, imder foreign 
direction, thus safeguarding the proper administration 
of the security despite the possible continuation or re- 
currence of unsettled conditions in China. 

" 4. That the groups should take the first series of the 
loan of L6o,ooo,ooo, at a fixed price, and be assured 

^ an option on the subsequent series at a price to be based 
on the market quotation of the first issue, thus giv- 
ing China the benefit of any improvement in her 
credit. 

" 5. That to protect the quotation of bonds issued and 
to assure a successful marketing of subsequent series 

^ China should not borrow through other groups until 
the entire loan of L6o,ooo,ooo had been issued. 

'* 6. That for a period of five years China should ap- 

V point the groups financial agents to assist the adminis- 
tration in its work of reorganization. 



INTERNATIONAL CONTROL 251 

" These conditions were submitted to the Chinese Gov- 
ernment and in reply the group representatives in Peking i 
were informed that it would be impossible to China to 
accept a loan on such terms. Negotiations, however, 
though interrupted, were not formally broken off, and 
from the end of June discussions were continued between 
the Chinese officials and the g^oup representatives, but 
without result. 

" The difficulty was not a question of the price at 
which the bankers should take the bonds. It was the 
question of 'control.' The Chinese particularly ob- 
jected to placing the Salt Gabelle under the Maritime 
Customs, or any foreign directed service, and to the crea- 
tion of a proper audit department to appointing the 
groups financial agents." 

The strongest opposition came from the Chinese Gov-, 
emment itself. The premier declined to entertain any 
proposal for effective supervision, and hinted that in the 
event of the bankers pressing their proposals, he would 
suspend negotiations and endeavor to raise money by 
means of a poll-tax, or some similar method. At secret 
sessions of the National Council it appeared that the 
council was also strongly opposed to any form of foreign 
control, and this feeling was reflected in the provinces, 
where a popular clamor was voiced against any semblance 
of foreign control. Dr. Sun Yat-sen and General Huan^ 
Hsing both declared against foreign supervision. 



252 FOREIGN FINANCIAL CONTROL IN CHINA 

On June i8, the Shanghai Chinese Chamber of Com- 
merce took the novel step of requesting the British 
Minister of Foreign Affairs to persuade the syndicate 
to modify the more stringent terms of the proposed loan. 
Sir Edward Grey's reply, communicated through His 
Majesty's Minister at Peking, was as follows : *® " Sir 
Edward Grey has authorized me to inform the Chamber 
of Commerce in reply that so far the action of the groups 
has met with the entire approval of His Majesty's Gov- 
ernment, who, however, cannot urge the Banks to make 
any loan which does not, in their opinion, offer adequate 
guarantees for the proper and useful expenditure of the 
proceeds and satisfactory security for the pa3mient of 
principal and interest; and further, that in regard to 
all questions connected with this loan His Majesty's 
Government is acting, and will continue to act, in full 
accord with the other governments concerned." 

The protraction of the loan negotiations had the 
result that several provinces, being in desperate financial 
straits, negotiated independent loans with certain 
foreign commercial houses, as for instance, the firms of 
Skoda, Diederichsen, and Krupp, in return for large 
contracts for arms and ammunition. Various other 
expedients were adopted by the Central Government, 
all of which while relieving a temporary necessity merely 
increased the dififiiculties of an already almost hopeless 

*o See " China Year Book," 1913, page 357. 



INTERNATIONAL CONTROL 253 

financial problem. Finally the Chinese Minister of 
Finance decided to negotiate with the representatives of* 
an independent British Syndicate, which appeared at 
that time on the Chinese financial market, for a larger 
loan of Lio,ooo,ooo. On July 12th a preliminary agree- 
ment and on August 30th the final contract for what^ 
became known as the Crisp loan was signed in London. 
The contract contained among others the following pro- 
visions:*^ 

" Article IV. The payments of interest and the re- 
pa3mients of the principal of the loan and all other 
amounts required for or incident to the service of the 
loan shall be and hereby are constituted a first charge 
on the surplus revenues of the Salt Gabelle, the total 
annual revenue of which amounts to Forty-seven Million 
Five Hundred and Ten Thousand Kuping Taels, of 
which Twenty-four Million Taels per annum are already 
hypothecated. The remaining Salt Revenue is hereby 
declared to be free from all loans, liens, charges, or 
mortgages. 

" Article VII. The price of the bonds to the Chinese 
Government shall be eighty-nine per cent, of their 
nominal value. 

" Article IX. The rate of interest for the loan shall 
be five per cent, gold per annum on the nominal prin- 
cipal. . . . The term of this loan and of the bonds evi- 

*i See " China Year Book " 191 3, page 360. 



254 FOREIGN FINANCIAL CONTROL IN CHINA 

dencing the same shall be forty years from the date issue 
of the loan to the public. 

" Article XIV. The Chinese Government engages not 
|to issue nor to authorize the issue of any other external 
loan until the whole of this loan has been issued to the 
public . . . but if the Chinese Government should 
desire to obtain further foreign capital before this loan 
is realized, and the terms offered by the Financial Group 
are as favorable as those offered by others, preference 
shall be given to the Financial Group." 

This latter article and the hypothecation of the surplus 
y revenues of the Salt Gabelle as well as the absence of 
any effective control provisions were considered highly 
detrimental to the interests not only of the Sextuple 
Syndicate but also of the Chinese Government. There- 
fore, as soon as the conclusion of this agreement became 
known the Sextuple Group refused to comply with the 
request of the minister of finance for further advances, 
while the British minister at once informed the Chinese 
Government that his government did not approve of 
the new loan and warned China that her policy was 
liable to alienate the powers principally interested in 
her finances. The British Foreign Office had previously 
been approached by Mr. Crisp with the view of solicit- 
ing the British Grovemment's support in his proposed 
loan. The Foreign Office's refusal and attitude is ex- 
plained in a telegram from Sir Edward Grey to Sir J. 



INTERNATIONAL CONTROL 255 

Jordan of August 23rd : *^ "It was explained to Mr. 
Crisp that, as a matter of general principle, His Majesty's " 
Government would never support a loan concluded 
without adequate guarantees for the control of the 
expenditure of the proceeds and without proper security. 
The fact that the Six Power Consortium, with the full 
support of the respective governments, had so far been 
unable to obtain satisfactory terms in these respects from 
the Chinese Government, rendered it very improbable 
that a syndicate without the same experience and un- 
supported by any foreign government could meet with 
a greater success." 

After the refusal of the international syndicate to 
make the advances requested the Chinese Grovernment 
decided to avail itself of at least half of the sum offered- 
by Mr. Crisp and L5,ooo,ooo were issued in London 
shortly afterward. But the Chinese minister of finance 
made it at the same time understood ** that China desired 
to deal with the six groups as the only combination 
capable of furnishing within the next few years the 
enormous sums which China would need to reorganize 
her administration and finance the industrial develop- 
ment upon which the Peking Government wished to em- 
bark." *^ For this reason, the Chinese Government , 
finally induced Mr. Crisp to agree to the cancellation 

*» See " China," No. 2, 1912, Vol. CXXI, No. 22. 
*• See Straight, op. cit., page 147. 



256 FOREIGN FINANCIAL CONTROL IN CHINA 

of Article XIV, as demanded by the Group, and of the 
flotation of the second half of his loan in return for 
Li 50,000 compensation.*^ 

The international loan negotiations were continued 
and an early signature of the Reorganization Loan agree- 
ment was expected on all sides, when, early in 19 13 new 
obstacles arose, which again threatened to wreck the 
negotiations. The source of the difficulty was this time 
certain Foreign Powers who, actuated by selfish motives, 
and in a highly discreditable manner began to scramble 
about the appointment of Foreign Adviser. It had been 
understood that China intended tcTliominate a Dane to 
the position of Chief Inspector of the Salt Administra- 
tion and that a German would be nominated Director 
of the National Loans Department. The only appoint- 
ment about which there was any uncertainty was that 
of the Adviser to the Accounts and Audit Department.'*^ 
But when the list of names was submitted to the Foreign 
Legations, the French and Russian legations formally 
objected to a scheme which included advisers of neutral 
nationality as well as a German. A suggestion then was 
made that two advisers of Russian and French nation- 
ality respectively be appointed for the Audit Bureau, 
the American and Japanese ministers disclaiming any 
ambitions for advisorship. 

** See " China Year Book," 1914, page 379. 
*5 See " China Year Book," 1914, page 381. 



INTERNATIONAL CONTROL 257 

The decision to make nationality the chief qualifica- 
tion for the adviserships was open to many objections 
from the Chinese point of view, particular exception 
being taken to the appointment of a Russian at a time 
when diplomatic relations were, so seriously strained by 
the Mongolian situation. Matters were therefore again 
brought to a complete deadlock. 

It was during this deadlock that President Wilson, in 
a reply to a communication from the American group, 
announced that the administration had refused the re- 
quest of the group to sanction American participation 
in the loan. The eventual resumption of serious nego-t 
tiations with what had then become the Quintuple Syn- 
dicate was probably due in no small measure to the fact 
that it was brought to the attention of the Chinese Gov- 
ernment that under an old loan contract the Russian Gov- 
ernment could claim the appointment of an adviser as a 
treaty right.*® China ultimately agreed to appoint the 
foreign advisers as proposed by the foreign minister, 
while the banks on their part agreed to rearrange the 
price of the loan and to reduce the rate of interest from 
SJ^ to 5 per cent. 

The Reorganization Loan Agreement was finally 
signed at Peking on the twenty-sixth day of April, 1913, 
between the government of the Republic of China of 
the one part, and the Hongkong and Shanghai Banking 

*« See " China Year Book/' 1914, page 383. 



2S8 FOREIGN FINANCIAL CONTROL IN CHINA 

Corporation, The Deutsch-Asiatische Bank, The Banque 
de rindo-Chine, The Russo-Asiatic Bank, and The 
Yokohama Specie Bank of the other part.*^ The 
amount was 25,000,000 pounds sterling at 5 per cent, 
per annum. '' In reimbursement of expenses connected 
with the payment of interest and with the repayment 
of principal of the loan the Banks are hereby granted 
by the Chinese Government a Commission of one-fourth 
per cent, on the annual loan service.'* (Article X.) 
'* The price of this present loan or of any series thereof 
to the Chinese Government shall be the price of its issue 
to the public on the London market less a deduction by 
the Banks of six per cent, of the nominal value of the 
bonds, the issue price in London to be not less than ninety 
per cent., securing to China a net price of not less than 
^eighty-four per cent, for the entire loan. The Banks 
shall I)c responsible for all expenses connected with the 
issue of the loan.'' (Article XIII.) "The term of the 
loan shall be forty-seven years." (Article IX.) 
According to Article IV — "This entire loan, together 
with any advances which may be made in connection 
therewith, is hereby secured in respect to both principal 
and interest by a charge upon the entire revenues of the 
Salt Administration of China, subject to previous loans 
and obligations already charged on the security thereof 
and not yet redeemed, as detailed in the statement 

*^ For text sec " China Year Book," 19 14, pages 387 ff. 



INTERNATIONAL CONTROL 259 

attached to this Agreement, and it shall have priority 
both as regards principal and interest over all future 
loans, charges and mortgages charged upon the above- 
mentioned revenues so long as this loan or any part 
thereof shall be unredeemed. No loan, charge or mort- 
gage shall be raised or created which shall take preced- 
ence of or be on an equality with this loan, or which 
shall in any manner lessen or impair its security over 
the said revenues of the Salt Administration of China, 
so far as required for the annual service of this loan, 
and any future loan, charge or mortgage shall be made 
subject to this loan, and it shall be so expressed in every 
agreement for any such future loan, charge or mort- 
gage." 

International " control " is established through the 
following provisions : " Article V. — The Chinese Gov- 
ernment engages to take immediate steps for the re- 
organization with the assistance of foreigners of the I 
system of collection of the salt revenues of China 
assigned as security for this loan, in the manner which 
has been determined upon by the Ministry of Finance 
and which is as follows: — The Chinese Government 
will establish a Central Salt Administration at Peking, ^ 
under the control of the Minister of Finance. This 
Central Salt Administration will comprise a Chief 
Inspectorate of Salt Revenues imder a Chinese Chief 
Inspector and a foreign Associate Chief Inspector, who 



26o FOREIGN FINANCIAL CONTROL IN CHINA 

will constitute the diief authority for the siq>erintendence 
of the issue of licenses and the compilation of reports 
and returns of revenues. In each salt producing district 
|there will be a branch office of the Chief Inspectorate, 
under one Chinese and one foreign district inspector 
who shall be jointly responsible for the collection and 
deposit of the salt revenues. The engagement and dis- 
Vnissal of these Chinese and foreign district inspectors, 
and of the necessary Chinese and foreign staflF at the 
chief and branch inspectorates, will be decided jointly 
by the Chinese and foreign chief inspectors, with the 
approval of the Minister of Finance. . . . 

" Release of salt against pa3mient of dues in any dis- 
trict will be made only under joint signature of the 
Chinese and foreign district inspectors, the revenues so 
collected to be lodged by them in a * Chinese Govern- 
ment Salt Revenue Account ' with the banks or with 
depositories approved by the banks, and reported to the 
Chief Inspectorate for comparison with their returns. 
This Salt Revenue Account shall be drawn upon only 
under the joint signatures of the Chief Inspectors, whose 
duty it will be to protect the priority of the several obli- 
gations secured upon the salt revenues. 

" So long as the interest and principal of this loan 

.are regularly paid there shall be no interference with 

the Salt Administration as herein provided, but if interest 

and/or principal be in default at due date, then after 



INTERNATIONAL CONTROL 261 

a reasonable period of grace the said organization shall 
forthwith be incorporated with the Maritime Customs 
and the revenues above pledged shall be administered 
for the account and in the interest of the bondholders." 

An Audit Department under foreign supervision is 
established in Article XIV : " The Chinese Govern- 
ment engages at once to put into effective operation an 
Account and Audit Department, imder the Provisional 
Regulations Promulgated by a Presidential Order dated 
the 15th of November, 1912, and published in the 
OMcicU Gazette of November i6th, 1912, copy and 
translation of which are hereto attached in Annex H of 
this agreement, subject to the understanding that any 
modifications which may be found necessary shall not 
impair their effect in regard to this loan. 

" The Chinese and foreign directors of the Bureau 
of National Loans shall witness their approval of all 
requisitions for loan funds by their joint signatures 
thereon. Withdrawals of loan funds from the banks 
shall be for amounts corresponding to the actual require- 
ments of disbursements. 

" Cheques and/or orders upon the banks for the 
withdrawal of loan funds shall be signed by a duly 
authorized representative of the Minister of Finance and 
shall be sent, together with the supporting requisitions 
duly signed as above, and the relative ' orders to pay * 
to a representative of the banks to be designated. The 



262 FOREIGN FINANCIAL CONTROL IN CHINA 

said representative of the banks, after satisfying him- 
self that the expenditure is in accordance with Article 
II of this agreement and the annexes therein referred 
to, shall forthwith countersign the cheque and return it 
to the Ministry of Finance for representation to and 
payment by the banks. 

*' Should the said representative of the banks be in 
doubt in respect to disbursements of loan funds which 
have been made, he shall be entitled to make inquiries 
of the foreign director of the Bureau of National Loans 
and to call upon him for the production of receipts and 
vouchers for inspection." 

The terms agreed upon were substantially those 

'demanded by the bankers at the beginning of the nego- 
tiations. The conclusion of the loan was followed by 
widespread political agitation. Both the Senate and the 
House of Representatives returned the government's 
dispatch announcing the conclusion of the loan and re- 
questing its registration. Dr. Sun took the extreme step 
of telegraphing to the governments and peoples of the 
foreign powers denouncing the loan as a highhanded 
and unconstitutional matter. 

The government had a hard stand in defending its 
attitude and action. The minister of finance and the 

^president drew the attention of the country to the fact, 
that foreign nations had pressed for payment of out- 
standing foreign loan charges. The following dispatch 



I 



INTERNATIONAL CONTROL 263 

from the Provisional President was sent to the Senate 
on May 7, 1913 : *® " Further delay of payment would 
evoke forcible interference in the administration of ourl 
national taxes which served as securities to the various 
loans. Then foreign supervision of our finance would 
actually begin and the Republic would be in danger of 
bankruptcy. . . . The loan was an absolute necessity." 
In a telegram from Tutuh Po, according to the minister 
of finance, it was stated : ^® " There will be foreign 
supervision if you borrow, but there will also be foreign 
supervision if you do not borrow. Therefore it would 
be more advisable to undergo temporary suffering, so 
that there may be a resurrection from that death." 

The government's policy was backed by the merchant 
class, disinterested patriots and the older officials, who 
were in favor of a large loan being raised for purposes 
of reorganization and economic development. These 
parties, — as opposed by the loudly patriotic press, the 
students and ambitious politicians who perceived that 
foreign control meant the curtailment of their oppor- 
tunities — recognized at the same time the necessity of 
foreign control. This is Mr. Bland's opinion, who in- 
forms us that, " the merchants of the Treaty Ports, and, 
generally speaking, the classes that have a stake in the 
country, are ... in favor of expert supervision and 

*® See " Far Eastern Review," Vol. 9, page 531. 
*® See " China Year Book," 1914, page 386. 



264 FOREIGN FINANCIAL CONTROL IN CHINA 

honest handling of foreign loans, recognizing the fact 
that only by these means can the money be spent to the 
country's economic advantage." ^^ 

The absolute necessity of a large loan might, perhaps, 
best be illustrated by an enumeration of the purposes 
for which the net proceeds of the loan were to be used. 
\ Over half of them were for the repayment of debts, 
while the administration expenses of the Central Gov- 
ernment (to cover a deficit in the regular budget), the 
disbandment of troops of various provinces, and the 
reorganization of the Salt Gabelle only claim a smaller 
portion of uses. The respective figures are stated in 
the appendices of the Loan Agreement thus:'^ 

A. Liabilities due by the Chinese Government: L 4,317,778 

(Including Arrears of Boxer Indemnity, 
repayment of advances, Treasury Bills, In- 
terest and Sinking Fund of previous loans) 

B. Provincial Loans: 2,870,000 

C. Liabilities of the Chinese Government shortly 

maturing : 3,592,263 

D. Disbandment of Troops: 3,000,000 

E. Current Expenses of Administration: 5,500,000 

(Estimated from April to Sept., 1913) 

F. Reorganization of the Salt Administration: 2,000,000 



Total L 21,280,041 

If taken at the minimum figure of 84 per cent, the net 

/ proceeds of the loan would still leave a deficit of L280,- 

041. To these requirements of the Chinese Government 

•■^o See Bland, op. cit., page 394. 

•"'1 See " China Year Book," 1914, pages 397 ff. 



INTERNATIONAL CONTROL 265 

then should be added the sum of L7,ooo,ooo for currency 
reform — considering that the currency loan of 191 1 
has not been floated — L3,ooo,ooo for Manchurian 
industrial development and many more millions for the 
eighteen provinces for industrial development and admin- 
istrative reform. The financial requirements of China 
in 19 1 2 were set forth in an article in the North China 
Herald of Sept. 28, of which we give the following 
abstract : " It is necessary to state . . . that the mer- 
chants, banks, and other rich Chinese who helped the 
new government, both during the struggle and after, 
now stand badly crippled from want of funds. They 
have been often told that their outstandings would be 
cleared as soon as the first loan with the foreigner was 
closed. Trade is badly in need of the funds spent on 
the revolution. . . . The amount on this score is not 
available, but the lowest estimate puts it at about taels 
20,000,000. ... It would seem that if foreign loans 
should serve any beneficial purpose at all for China, a 
sum of L40,ooo,ooo is necessary during the year ending, 
say next June; and further amounts, into the details 
of which it is too early now to go, appear likely to be 
needed in the coming years.** And further : " There 
is no doubting that any syndicate proposing to lend 
money to China should be able to arrange for L40,ooo,- 
000 during the next nine months, and be able to pay 
about L6o,ooo,ooo during the next three years. The 



266 FOREIGN FINANCIAL CONTROL IN CHINA 

original proposal of the sextuple group was arranged 
on this basis, and the total of L6o,ooo,ooo was agreed 
upon as necessary for the regeneration of the country. 
. . . That the banks composing the sextuple group, 
with their respective governments at their back, would 
be able to supply China with this large total with more 
facility than any number of other syndicates is beyond 
question. The Chinese themselves know it, and hence 
their anxiety to keep on good terms with the gfroup in 
spite of their latest action." 

The banks composing the syndicate were not only able 
\ but also willing to supply China with all the money she 
needed — provided her credit could be maintained. But 
China's credit can only be maintained by preventing 
indiscriminate borrowing and wasteful expenditure and by 
enhancing the value of the securities upon which her credit 
rests. In order to maintain China's credit the bankers felt 
it would be absolutely necessary for their financial agents 
to have a certain advisory capacity during the con- 
tract and a supervision over the revenues upon which their 
bonds were secured — last not least so as to place Chinese 
bonds at a price that would maintain China's credit as 
well as the confidence of the bondholders. Those who 
have criticized the attitude of the syndicate, have, as Mr. 
Straight points out, " in a measure lost sight of some of 
the elementary functions of a banking house which 
handles foreign loans. They have forgotten that it is 



INTERNATIONAL CONTROL 267 

not the bankers themselves who provide the money to 
finance a foreign loan, though they may for a time ad- 
vance from their own resources certain preliminary pay- 
ments. Bond issues, however, are sold to the public, 
the bankers receiving their commission on the sale, and 
the reputation of a house of issue like that of any other 
commercial establishment depends upon the quality of 
the commodity which it sells. Bankers would not be 
justified in requesting their clients to take bonds on a 
sentimental and not a business basis any more than the 
president of an insurance company would be warranted 
in loaning funds for which he was responsible to a per- 
sonal friend regarding whose solvency he had no guar- 
antee. . . . The groups have not been attempting to 
force money, with humiliating conditions attached, on 
China. They have stated merely that they are willing, 
only upon certain conditions, to loan the money which 
China has requested them to furnish. The groups do 
not insist that China accept a loan if these conditions 
are unacceptable. They do say that they will not issue 
Chinese bonds on terms which they regard as unsatis- 
factory." »2 

The position of China's credit in 1912 was highly 
unsatisfactory, for China had neither sufficient nor stable^ 
security for the amount that it was necessary for her 
to borrow. It was therefore imperative to build up 

'2 See Straight, op. cit, pages 155 and 157. 



I 



268 FOREIGN FINANCIAL CONTROL IN CHINA 

the revenues in order to provide a margin for future bor- 
rowing. The most important security that China could 
offer for the repayment of, and interest upon, any exten- 

' sive foreign loans which were required for reorganiza- 
tion purposes was, by verdict both of foreign and Chinese 
financiers, the Salt Gabelle. Foreign loans involving an 
annual charge of about 27,000,000 taels were in 1913 
already secured upon this revenue. To this sum were 
f to be added 12,500,000 taels, constituting the annual in- 
terest upon the 25 million Pound Sterling Reorganiza- 
tion Loan, not considering, however, repayments of prin- 
cipal which were to begin after the eleventh year. Con- 
sidering that the total revenue from salt hitherto had 
been approximately 40,000,000 taels per annum,^^ there 
was no margin left for further loans, while the main- 
tenance of this figure was by no means assured. 

The reform of the salt revenue system, since 1913, 

^ has at least equaled any reasonable expectation. A few 
figures have established a glorious vindication for a rea- 
sonable financial '' control.'' The results of the salt tax 
for 1914 proved to be $58,826,000; the revenue of 1915 
was $69,000,000; and the figure of the salt tax revenue 
in the Budget of 1916 is $84,771,365.^* 

As in the old days the credit of the Chinese Govern- 
ment was built upon the foreign controlled International 

^^3 See "China Year Book," 1915, page 310. 
5* See " China Year Book," 1916, page 320. 



INTERNATIONAL CONTROL 269 

Maritime Customs Service, so has China's credit to-day / 
been materially enhanced through the reorganization of 
the Salt Gabelle tmder international control. That ad- 
vantages have accrued to China as well as to the world 
from this form of control is beyond doubt. 



CHAPTER IX 



CONCLUSION 



It was the purpose of .the preceding chapters to 
analyze the problem of foreign control in China, formu- 
lated in the introduction, on a scientific basis. It need 
hardly be said that any formulation in the field of inter- 
national relations is, in the present period of transition, 
liable to undergo material alterations, although it will, 
of course, always retain a historical value. This point 
seems so clear that it would require no further illustra- 
tion and comment if it were not for the fact that the 
struggle of international forces in China presents a 
problem of such stupendous difficulties and possibilities 
for new complications as to make the value of a formu- 
lation doubly questionable. In way of conclusion then, 
we shall enlarge and comment upon certain important 
aspects of the problem which it has been impossible for 
us fully to explain within the limits of the preceding 
chapters, and which, besides, it was not strictly within 
the purposes of the present work closely to discuss. 

Things had previous to the world war reached a pass 

in which every power was pledged to every other power 

270 



CONCLUSION 271 

to uphold the integrity of China, the open door, and equal 
opportunity. But at the same time the very national 
existence of China was at stake. We have seen North- 
ern and Southern Manchuria parceled off and trespassers 
warned away, Outer Mongolia alienated, Inner Mon- 
golia threatened, and Shantung, Fukien, the Yangtsze 
Valley and the Southwest Provinces reserved for special 
exploitation. All that aggrandizement, disguised under 
some railway loan and properly called a " conquest by 
railroad and bank," was primarily incited by the natural 
pressure of financial and industrial forces seeking ex- 
pansion from the constricted confines of the stronger, 
more advanced and over-populated manufacturing coun- 
tries — although it cannot be denied that one or two of 
the powers had motives of a purely political character. 
Foreign commercial pressure was nothing new to the 
Chinese. In fact it had been exercised, only in a differ- 
ent form, for almost a century. Under great pressure 
the Chinese were first prevailed upon to open up a cer- 
tain number of their ports as points of contact between 
themselves and the outside world. As soon as a foot- 
hold in the treaty ports was gained, began the process of 
seizing territory. The powers were always demanding 
more privileges of intercourse until of late years they 
started this determined and concerted campaign for 
spheres of interest and railway concessions. The for- 
eigners were eager to build railroads, not because they 



272 FOREIGN FINANCIAL CONTROL IN CHINA 

thought the Chinese needed the railroads but because 
the foreigners needed the profit oif the railroads. This 
then is a point of supreme significance, namely: that 
% the bottom idea of all the treaty stipulations and agree- 
ments as to intercourse, customs, extraterritoriality, 
spheres of interest, railway concessions and control was 
not the welfare of the people of China, but the profit 
and ease of doing business by the people of the West. 
With the exception of a few missionaries and a few 
•scholars, writers and artists who admire Chinese civiliza- 
tion, the interest of the world was a money interest pure 
and simple. 

That the motive of foreigners was money-making — 
or land-stealing — the Chinese have fully discovered 
from an intercourse of over a hundred years. They 
had also discovered that under the regime of extra- 
territoriality, of international settlements, leased terri- 
tories, concessions, railway zones and control of Chinese 
sovereignty and Chinese rights were disregarded at in- 
numerable times and they found that the interests of 
China were never consulted, although she had to pay 
the bills. These bills consisted of an unfavorable balance 
of trade and a heavy foreign debt, which threatened to 
result in bankruptcy and the control of China by foreign 
governments acting for their citizens. China's financial 
distress had mainly arisen from the burden of indemni- 
ties exacted by foreigners and from an increase of ex- 



CONCLUSION \. 273 

penditures incurred to gain the power of defense against 
the foreigner. The obvious and natural way of over- 
coming these financial difficulties would have been for 
China to increase her exports over her imports, or at 
least to increase the quantity of commodities required 
to be exported to maintain a commercial equilibrium. 
But in fact the tendency has been in the direction of an 
increase of imports. China has never been a creditor 
nation due to the fact that the foreigner insisted upon 
supplying the Chinese with goods which they did not j 
want by creating an artificial demand for them, while 
China had nothing much to export that the foreigner 4^ 
stood in need of. The heavy excess of imports of mer- ' ^ '< 
chandise over exports was finally met to some degree by ^ 
sales of large blocks of railway stocks and bonds which ^ 
should thus prove another source of usefulness to the 
foreigner. 

For all these reasons the Chinese showed an obstinate 
determination to keep the foreigner out or to treat him 
with watchful seclusion and to obstruct his designs 
wherever he had to be admitted, or to revolt openly 
against him. Indeed the Chinese as a nation have al- 
ways wished to be left alone; they did not desire the 
presence of the foreigner; and any interference, even for 
their good, was resented by them. It was resented in 
an unmistakable manner; for the Chinese have an ex- 
traordinary capacity for passive resistance. Says Sar- 



274 FOREIGN FINANCIAL CONTROL IN CHINA 

gent:^ ^'The Chinese may be coerced into restraining 
their resentment for a time; the history of their rela- 
ti<xis with European powers proves amply that they 
neidier change nor forget Once thqr obtain sufficient 
material force, they are likely to assert, in no uncertain 
fashion, the daim to diat right enjoyed even by minor 
Western nations, the right to determine for themselves 
the conditions of intercourse with foreigners. The vast 
pos»Ulities of the country suggest the thought that the 
consequences, whether political or economic, may not 
redound to the advantage of the Western nations which 
have hitherto treated China as an uncivilized region, 
to be exploited for the sole benefit of die self-elected 
exponents of the ideas and methods of European civili- 
zation." 

^ China's foreign policy has been stable and decided. 
By dint of intellectual force and superior diplomatic 
tactics the Chinese have usually overcome the most 
serious conditions. And in unmistakable terms have 
they given the world to imderstand that they will not 
be friendly with an alien race which either usurps their 
government or assumes a dictatorial attitude towards it, 
or tries to exploit the country and its inhabitants: — 
until the West woke up and took stock of the Chinese 
people and began to reestimate its strength of resistance 
and its potential power. Whereupon it dawned upon 

1 Sec Sargent, op. cit., page 309. 



CONCLUSION 275 

the world that the Chinese are anything but a decadent 
or exhausted race; on the contrary, that they possess 
many qualities that go to the making of a strong and 
efficient people. 

For these and other reasons which we shall mention 
presently, the foreign powers gradually moderated their 
ambitions with a view of an ultimate abandonment of 
the spheres of interest policy and a redeclaration to the 
adherence of the " Open Door " doctrine in its widest 
sense. They began to realize that further international 
jealousies, than which there could be nothing more 
pernicious to their individual interests, could only be 
avoided through an internationalization of Chinese fi- 
nance and an international participation in any great 
money transaction. With such internationalization of 
railways and loans was to be combined an international- 
ization of financial control. Only thus could the foreign 
powers hope to enforce their terms — which was fully 
understood by Count Hayashi, when he wrote : ' " The 
attitude of the powers towards China has of recent years 
undergone considerable change. This has put their act- 
ing in unison quite within the limits of possibility. 
Nowadays political considerations are of minor import- 
ance, as compared with economic considerations. . . . 
There is no longer any desire to obtain control of parts 
of China, for China is a very difficult country to manage 

2 See Ha3rashi, op. cit., pages 302 and 307. 



276 FOREIGN FINANCIAL CONTROL IN CHINA 

and the population is very large." Or again : " The 
way to deal with China is for the powers to combine and 
insist on what they want and to go on insisting until 
they get it. . . . Here are only these alternatives before 
the powers. They must either bring their combined 
forces to bear on China to get what they want or else 
leave her alone, until like an awakened lion §he is ready 
to spring on her prey, in which case she will be powerful 
enough to threaten the acquired rights of all the powers." 
Notwithstanding any possible political advantages of 
international cooperation in China, it cannot be doubted 
' that the principal reasons tmderlying it were of a purely 
economic character. The financial world had, before the 
outbreak of the war, begun to consider the conception of 
nations as hostile competitors in world finance as one 
economically unsound. The new and growing tenden- 
cies of a genuinely international finance tended towards 
elimination of competition and towards consolidation 
and substitution of pacific motives. As the economic 
standardization of the world proceeded, the cooperation 
of the financiers of the various countries in business 
enterprises in all parts of the world began to bind up 
the prosperity of each individual country intimately 
with the welfare of all other countries. Says Hobson, ' 
" Modern finance is the great sympathetic system in an 
economic organism in which political divisions are of 

8 See Hobson, " Investment/' page 122. 



CONCLUSION 277 

constantly diminishing importance. That which Christi- 
anity, justice, and humane sentiment have been impotent 
to accomplish through nineteen centuries of amiable 
effort, the consolidation of financial interests, through 
bourses, loans, companies, and the other machinery of 
investment, seems likely within a generation or two to 
bring to consummation, namely, the provision of such a 
measure of effective international government as shall 
render wars between civilized powers in the future vir- 
tually impossible." 

In spite, or rather, in consequence, of the present war 
this principle of concerted action in finance and diplo- 
macy will be no passing phase. In a survey of the future 
it is apparent that nations, at least certain nations, will 
become more rather than less connected, and as such 
will often find it advantageous to pursue identical lines 
of policy, especially in Oriental countries. If the world 
is to be given a chance for anything like a permanent 
settlement at the conclusion of this war, the watchword 
will have to be *' international cooperation," certainly 
not international economic strife. The construction of 
railways and administrative loans by an international 
syndicate then probably represents one line to which 
events point for the Chinese problem, which still ranks 
as the greatest capitalistic proposition of the near future. 
Such cooperation will simultaneously have the inherent 
merit of being " a guarantee for the preservation, rather 



278 FOREIGN FIXAXCIAL CONTROL IN CfflNA 

than an instrument for the destruction, of China's in- 
ttgrity/* as Mr. Straight sajrs.* For our investigation 
will have it made obvious, that, when a balance of inter- 
ests exists among the powers, China can come out of 
great trouble with less damage than has been the case 
in the era of exclusive spheres of intcresL 

This latter point is of importance in view of the fact 
that a measure of foreign financial control in some forai 
or another has become as essential to China's preserva- 
tion as the borrowing of foreign capital. International 
intercourse is as dependent upon legalized relationships 
as is domestic intercourse upon the preservation of law 
and order. But the insecurity of former times has not 
been remedied much by the new Republican regime. 
That, because the revolution was by no means a revolu- 
tion o{ the Chinese people or of Chinese institutions, but 
merely the accidental triumph of a body of politicians 
mainly clue to the treason of Yuan Shih-Kai. The in- 
stincts and traditions of Asiatic races cannot be suddenly 
chanpfcd by the drafting of a constitution. To quote 
Hlantl : ** Destitute of constructive genius, without au- 
thoritative leaders or permanent elements of cohesion, 
the diinese Republic has been suddenly conferred upon 
n people that neither wants nor understands representa- 
tive f>\>vernment.** ^ The Chinaman as a factor in public 

• Ser Strttiii^^t, op. cit., jvagc IJO. 
** Scr HUnd. op. cit.. page 147. 



CONCLUSION 279 

life as the West conceives the idea is as yet an unknown 
quantity. The nation, as a whole, does not concern itself 
with political affairs any more than, on the advice of 
Confucius, it concerns itself with theological affairs. To 
illustrate this: it has been estimated that less than 5 
per cent, of the population were really concerned in the 
overthrow of the monarchy.® 

There will be no hasty transformation of scene in 
China, which would be as disastrous to her as an over- 
investment of capital. China's hope lies not in a sudden 
revolutionary destruction of the old order, but in slow, 
steady growth, by educative processes, which shall enable 
the nation to adapt itself gradually to its changed 
environment. Only in a very small degree have the 
Chinese begun to realize the idea of nationality, of a 
central government, of a imiform legal system, and of 
taxation as distinguished from tribute and official per- 
quisites. Left now to work out her own salvation on 
these and other lines, China's progress would be pain- 
fully slow and surely harmful to foreign interests: — 
therefore the necessity of a mild and friendly form of 
international financial '' control," at least in such matters 
as affect the foreigner directly; of which our Chapter 
VIII served as illustration. 

The advisability of international financial cooperation 
and control being established, there remains for discus- 

•Scc Whclpley, op. cit., page 270. 



28o FOREIGN FINANCIAL CONTROL IN CHINA 

sion only the all important question, whether such 
cooperation will be possible. If Japan is prepared to 
fall in with an international scheme it will no doubt 
stand a good chance of being carried out. And the 
cordial relations now existing between Japan, the United 
States, Great Britain, and France lend color to the 
assumption that there will henceforth be financial 
cooperation in China, at least among these four powers. 
Such financial cooperation would certainly not conflict 
with Japan's Eastern Asiatic Doctrine. For the latter 
aims, as does the Monroe Doctrine in the Americas, at 
a political, not at an economic, exclusion of Western 
Powers. 

However, the future is too uncertain even for any 
trustworthy formulation of the new problems which are 
just shaping in the Far East. But whatever the future 
may hold in store, it seems clear that we must first adopt 
a generous, tolerant spirit of mutual respect, if we hope 
at all to further the cause of international good rela- 
tions in the Far East. To use the words of Professor 
Brown : '^ " Our task becomes one of determining the 
specific mutual interests which nations are prepared to 
recognize; and then to endeavor, in a spirit of toleration, 
friendly concern, and scientific open-mindedness, to 
formulate the legal rights and obligations which these 
interests entail. 

^ Brown, " International Realities," page 226. 



CONCLUSION 281 

" The great preliminary work of facilitating closer 
relations, of removing misunderstandings, of reconciling 
conflicting points of view, of identifying various inter- 
ests, of fostering common conceptions of rights and obli- 
gations remains yet to be done." 

An absolutely imbiased contribution to such prelim- 
inary work was our task. 



BIBLIOGRAPHY 

Official Documents: 

France : 

Documents Diplomatiques (Livres jaunes). 

Rapports Commerciaux des agents diplomatiques et consu- 
laires du France. 
Germany: 

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Das Staatsarchiv. 
Great Britain: 

British and Foreign State Papers. 

Diplomatic and Consular Reports. 

Parliamentary Papers (Blue Books). 
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United States: 

Diplomatic Correspondence of the United States. 

Executive and Legislative Documents of the United States. 

Foreign Relations of the United States. 

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American Journal of International Law, Supplements to. 

Hertslet, E. Sir, Treaties Between Great Britain and China 
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Martens, G. F. de, Nouveau Recueil General de Traites. 

Malloy, W. M., Treaties Between United States and Other 
Powers, Washington, 1910. 

Mayers, W. F., Treaties Between the Empire of China and 
Foreign Powers, Shanghai, 1897. 

Rockhill, W. W., Treaties and Conventions with or Concern- 
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See also: British and Foreign State Papers. 

L The China Year Book, 191 2, 1913, 1914. 

J, Periodicals, etc: 

L'Asie Fran^aise. 

The Far Eastern Review. 

283 



284 BIBLIOGRAPHY 

The Journal of the American Asiatic Association. Now 

" Asia/* 
The London Times, Daily and Weekly. 
The North China Herald. 
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V. Theory of International Relations: 

Bastable, C. F., The Theory of International Trade, London, 

1913. 
Brown, P. M., International Realities, New York, 191 7. 

Hall, W. E., International Law, Oxford, 1909. 
Harms, B., Volkswirtschaft und Weltwirtschaft, Jena, 1912. 
Hobson, C. K., The Export of Capital, London, 1914. 
Hobson, J. A., An Economic Interpretation of Investment, 

London, 191 1. 
Hobson, J. A., International Trade, London, 1904. 
Hobson, J. A., Work and Wealth, Chapter XVII, New York, 

1914. 
Kobner, O., Kolonialpolitik, Jena, 1908. 
Leroy Beaulieu, P., De La Colonisation, Paris, 1908. 
Liszt, F. Von, Das Volkerrecht, Berlin, 1907. 
Oppenheim, L., International Law, London, 1905. 
Reinsch, P. S., World Politics, New York, 1902. 
Reinsch, P. S., Colonial Government, New York, IQ06. 
Withers, J. F., International Finance, London and New York, 

1916. 

VI. Literature referring to the whole thesis as well as to Chap- 
ters I and II: 

Bland, J. O. P., Recent Events and Present Policies in China, 
London, IQ12. 

Bland, J. O. P., and Blackhouse, China Under the Empress 
Dowager, London, 1910. 

Boulger, D. C. History of China, London, 1898. 

Brinkley, F., China, 4 vols., Boston, 1902. 

Colquhoun, A., China in Transformation, New York, 1912. 

Colquhoun. A.. English Policy in the Far East, London, 1885. 
Xordier, H., Histoire des Relations de la Chine avec les Puis- 
sances Occidentales, 3 vols., Paris, 1902. 

Curzon, G., Problems of the Far East, Westminster, 1896. 

Douglas, R. K., Europe and the Far East, Cambridge, 1913. 

Harrison, J., Peace or War East of Baikal? Shanghai, 1910. 

Hazen, C D., Europe Since 1815, New York, 1910. 

Hornbeck, S. K., Contemporary Politics in the Far East, New 
York, 19 1 6. 



^ BIBLIOGRAPHY 285 

Hsu, M. C, Railway Problems in China, Columbia University 
Studies, New York, 1915. 

Ireland, A., China and the Powers, Boston, 1902. 

Kent, P. H., Railway Enterprise in China, London, 1907. 

Krausse, A, The Far East, London, 1900. 
^Laboulaye, R de, Les Chemins de Fer de Chine, Paris, 191 1. 

Lawton, Lancelot, The Empires of the Far East, Boston, 1912. 

Leroy Beaulicu, P., The Awakening of the East, New York, 
1900. 

Mahan, A T., The Problem of Asia and Its Effects upon 
International Policies, Boston, 1900. 

Millard, T., Our Eastern Question, New York, 1916. 

Morse, H. B., The International Relations of the Chinese 
Empire, London, 1910. 
"^ Morse, H. B., The Trade and Administration of China, Lon- 
don, 1913. 

Okakura, K., Ideals of the East, London, 1903. 

Reinsch, P. S., Intellectual and Political Currents in the Far 
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^^^Sa^ent, A. J., Anglo-Chinese Commerce and Diplomacy, Ox- 
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Schiller, W., Abriss der Neueren Geschichte Chinas, Berlin, 

1913. 
Schumacher, H., Die Organisation des Fremhandels in China, 

Leipzig, 191 1. 
Staunton, Sir G., The Englishman in China, etc., Edinburgh 

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Weale, B. L. P., The Truce in the East and Its Aftermath, 
New York, 1907. 

Weale, B. L. P., The Coming Struggle in Eastern Asia, Lon- 
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Williams, S. W., Anson Burlingame, New York, 1902. 

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etc., Paris, 1912. 
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286 BIBLrOGRAPHY 

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France, Paris, 1899. 
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Mackey, B. L., China, Die Republik der Mitte, Stuttgart, 1914. 
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dem Kriege, Berlin, 1915. 
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Aubert, L., Paix Japonaise, Paris, 1906. 

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i' 



INDEX 



Adams, John Quincy, 7, 8. 

Agreements between: 

Great Britain and China of 

1886, 1890, 1893, 23; and 

Germany defining policy, 39, 

96, 147, 148; and Japan of 

1905, 178. 
Japan and China of 1905, 173, 
of 1907, 175, of 1909, 174, 
17s; and France of 1907, 
179; and Russia of 1907, no, 
179, 183, of 1910, no, 180, 
183, 184, of 1916, no, 192; 
and United States of 1908, 

179, 202, of 1917, I9i» 193, 
218, 219. 
Russia and China of 1913, 
114; and China and Mon- 
golia of 1912, 113, of 1914, 
114, of 1915, 114; Manchu- 
rian agreement of 1901, 96- 
98, of 1902, 98, 99, of 1909, 
103-107. 

Anderson, G. K, American Con- 
sul, 132. 

Anglo- Japanese Alliance, 42, 43, 
90, 98, 178, 186, 187, 188. 

Balfour, A. J., 29, 32. 
Banks : 
Banque de I'Indo-Chine, 61, 

234, 258. 
Deutsch-Asiatische Bank, 62, 
143, 146, 153, IS4, 220, 223, 
231, 233, 25a 
Hongkong and Shanghai 
Banking Corporation, 34, 
45, 46-48, 52, 62, 154, 220, 
233. 239, 244, 245, 257. 

289 



International Banking Corpo- 
ration, 234. 
Russo-Chinese (Asiatic) Bank, 
31, 32, 78, 79, 86, 92, 99, III, 
112, 247, 258. 
United States Banking Group, 

228. 
Yokohama Specie Bank, 172, 
246, 258. 
Brice, Calvin, 204. 
Billow, Prince, 139, 140, 147. 
Burlingame, A., 18, 197. 

Chang Chih Tung, 227, 232. 
China: 

Boxer rebellion, 41, 42, 44, 96, 
160. 

Control, Foreign, Chinese op- 
position to, 39, 40, 232, 233, 
251, 252, 262, 263. 

Declaration concerning resto- 
ration of Kiaochau, 189. 

Declarations concerning non- 
alienation of Fukien, 160; 
Hainan, 127; Shantung, 188; 
Southwestern Provinces, 
127; Yangtsze valley, 30. 

Financial difficulties, 233, 234, 
236, 237, 248, 264, 265, 272. 

Indemnities, 40, 44, 154, 248. 

Manchu regime, 24, 238. 

Railways, concessions, see un- 
der Railways ; i^guUtions, 

39, 40. 
Revenues hypothecated : Li- 
kin, 220, 224, 231, 233, 248; 
Maritime Customs, 16, 17, 
220; Peking Octroi, 221; 
Provincial, 221, 224, 231, 



290 



INDEX 



334; Salt Gabelle, 321, 234, 

348, 250-254, 258-261, 268. 
Revolution, 233-234, 336, 238, 

340, Tyg. 
Sovereignty, 171, 188, 323, 

233, 273. 
Suzerainty over Burma, 33; 

Indo-China, 119; Korea, 

157; Mongolia, 114; Sik- 

kim, 24. 
Tsungli-Yamen, 15, 28, 29, 31, 

3^ 33. 
China Association, 30, 46, 88. 

China Merchants' Steam Navi- 
gation Co., 238. 
Chino-Japanese War, 24, 40, 157, 

158. 
Concessions, see under Railways. 
Control, foreign (see Introduc- 
tion for definition) : 

British, 35, 49, 50-60, go, 222. 

French, 130, 131. 

German, 144-147. 

International, 220-228, 232- 
236, 246, 250, 251, 261, 262, 
266-269, 275-279 ; Maritime 
Customs Service, 20, 220, 
221, 225, 232, 250, 251, 269; 
Salt Administration, 258- 
261, 264, 269. 

Japanese, 164, 166, 171, 175- 
177, 182, 191, 194. 

Russian, 79, 80, 82-84, 91, 95, 
98, loi, 107, no. 

Russo-Belgian, 94, 95. 

Straight, W., on control, 57, 
58, 222, 223, 226, 227, 232, 
235-236. 
Conventions between China and 
France, Foumier, 120, Kuang- 
chouwan, lease of, 126, rail- 
ways, 120. 

Germany, Kiaochau, lease of, 
127, Shantung rys., 141, 150. 

Great Britain, Chefoo, 12, 



Hongkong, extension of, 29^ 
O'Conilbr, 33, Peking, 14, 
Weihaiwei, lease of, 38. 
Japan, confirmation of treaty 

of Portsmouth, 166. 
Russia, Cassini, 75, 76, li- 
aotung and Port Ardiur, 85; 
86. 
Curzon, Lord, 116. 



East India Co., i, 4, 5. 
Elgin, Lord, 10. 
European War, 155, 187. 
Extraterritoriality, 11, 13, 13, 
20, to7- 



Ferry, Jules, 123. 
France : 
Commerce in South China, 

131, 133. 
Control, see under Control. 
Foreign policy, colonization, 
131; expansion, 1 19-126; 
finance, 136; relations with 
Russia, 134, Japan, 74, 158, 

179. 
Indo-China, 119, 121; Bank of, 

see under Banks; Conseil 

Sup^rieur de, 124, 127; 

Doumes, Governor, 119^ 121; 

railways, 128. 

Kuangchouwan, lease of, 26, 
126. 

Loans, see under Loans. 

Protectorate over Annam, 22, 
119; Cambodja, 119, 122; 
Cochin-China, 119, 122 ; 
Tongking, 22, 120-123. 

Railway concessions, see un- 
der Railways. 

Southwestern provinces, inter- 
ests in, 25, 127. 
Fukien, see under Japan. 



INDEX 



291 



Germany : 
Commerce in China, 142, 148, 

149. 
Control, see under Control. 

Deutsch-Asiatische Bank, see 

under Banks. 

Diplomacy and Finance, 149, 

151-153. 

Financial Agreement with 
British Synd., 47, 62, 229. 

Financial methods, 152, 153. 

Foreign policy, Biilow on col- 
onization, 139; open door, 
139, 148; place in the sun, 
139; relations with Great 

Britain, 35-37, 39, I47, 148, 
154, 155, 226. 

Government support to 
finance, 48. 

Hoangho valley, sphere of in- 
terest, 36, 146. 

Kiaochau, lease of, 24, 28, 127- 
129. 

Loans, see under Loans. 

Railway concessions, see un- 
der Railways. 

Shantung, hinterland, 25, 31, 

35-37, 14s, 146. 
Goto, Baron S., 167. 
Great Britain: 

British and Chinese Corpora- 
tion, see under Railways. 

Commerce in China, 45, 68, 
and chapter one. 

Control, see under Control. 

Declaration concerning rail- 
way spheres, 34; Weihaiwei, 

36. 

Demands on China, 28, 29, 32, 

33. 

Foreign Office supports Bank- 
ing Syndicate, 45, 49, 244- 
246, 255. 

Foreign policy, counter-con- 
cessions, 28, 29; free-trade, 



22; laisser-faire, 65; non- 
interference, 21, 66; open 
door, 27, 38; public opinion, 
45, 64; relations with China, 
see chapter one, France, 28, 
Germany, 35-37, 39, 147, 148, 
154, 15s, Japan, see un- 
der Anglo- Japanese alliance, 
Russia, 28, 33-35, 42, 43, 88, 
92, United States, 38; vested 
interests, influence of, 45, 46. 
Hongkong, possession of, 6, 7, 

29. 
Hongkong and Shanghai 

Bank, see under Banks. 

Loans, see under Loans. 

Protectorate over Burma, 23; 
Sikkim, 24. 

Railway concessions, see un- 
der Railways. 

Weihaiwei, lease of, 28. 

Yangtsze valley, sphere of in- 
terest, 25, 29, 30, 34. 
Grey, Sir E., 252, 254. 

Harriman, E. H., 205-207. 

Hart, Sir R., 17, 41. 

Hay, Secretary, 38, 178, 199, 200. 

Hayashi, Count, 275. 

Heyking, Baron, 35. 

Hoangho valley, see under Ger- 
many. 

Hong merchants, 2. 

Hongkong, see under Great 
Britain. 

Hoyer, L. de., 11 1, 

India and opium, 7. 

International financial coopera- 
tion, necessity for, 66, 246, 
276-279; see also under 
Loans and Railways. 

Japan : 
Chino- Japanese war, 24, 40, 
7Zy 157, 158. 



292 



INDEX 



Commerce in China, 163-165. 

Control, see under Control. 

Declaration concerning Kiao- 
chau, 189. 

Diplomacy and International 
law, 181. 

Eastern Inner Mongolia, 
sphere of interest, 188-190. 

Economic forces, 162, 163. 

Finance, 162. 

Foreign policy, commercial, 
162-164, 172 ; continuity, 181 ; 
Emperor's proclamation, 161, 
162; equal opportunity in, 
independence of China, and 
open door, 177-180, 191, 193 ; 
harmonization of Eastern 
and Western civilization, 
157, 161; patriotism, 161; 
Pax Japonica, 194; Russian 
precedence, 182, 183; self- 
control, 160; relations with 
France, 74, 158, 187, Ger- 
many, 74» 158, 187, Great 
Britain, 43, 187, see also un- 
der Anglo-Japanese alliance, 
Russia, 43, 100, loi, 156- 
160, 181-184, United States, 
191, 202, 218. 

Formosa, cession of, 158. 

Fukien, sphere of interest, 25, 
160. 

Government, form of, 185, 186 ; 
economic paternalism, 171, 
172; Elder Statesmen, 160. 

Kiaochau, seizure of, 187-189. 

Korea, influence in, 156, 157. 

Liaotung peninsula, renunci- 
ation of, 74. 158-160. 

Loans, see under Loans. 

Pax Japonica, 194, 195. 

Port Arthur, lease of, loi, 
165, I77» 189. 

Portsmouth, treaty of, 165, 
176, 178, 181. 



Railway concessions, see un- 
der Railways. 
Shantung, sphere of interest, 

188, 189. 

South Manchuria, sphere of 
interest, concessions, 100, 

189, 190; exploitation, 166, 

167, 185; Fushun collieries, 
i^ ; government activities, 
170, 171 ; railway guards, 

168, 169, 176; zones, 169, 
170; Sungari river, 192. 

South Manchurian Ry. Co., 

see under Railways. 
" Special Interests " in China, 

191, 193. 
Jardine, Matheson and Co., see 

under Railways. 
Jordan, Sir J., 237, 255. 

Knox, Secretary, 183, 205, 207, 

208. 
Korea, 24, 43, 73, 99» 156, I57, 

160, 176. 
Kuangchouwan, see under 

France. 
Kuang Hsu, Emperor, 206. 
Kuhn, Loeb and Co., 206, 228. 
Kung, Prince, 15. 

Lansing, Secretary, 218. 

Li Hung Chang, 73-75, 77, 127. 

Loans, international with Gov- 
ernment support: 
Anglo-German Boxer Indem- 
nity, 44, 154, 221, revenues 
pledged, 221 ; Tientsin-Pu- 
kow Ry., 154, 222-225, reve- 
nues pledged, 224, 225. 
Anglo-German and Franco- 
Russian Chino-Japanese war 
indemnity, 40, 41, 134, 154, 
220, revenues pledged, 41, 
220, 221. 
Four Power Syndicate, 227- 



INDEX 



293 



244; "Currency" loan, 234, 
235, revenues pledged, 234; 
" Hukuang " loan, 229-234, 
revenues pledged, 231. 
Six Power Syndicate, 246-257, 
and Five Power Syndicate, 
257-262 ; Reorganization 

loan, 257-262, 268, revenues 
pledged, 253, 258-261. 

Loans, private : " Belgian " syn- 
dicate, 236, 241, 242; Cottu, 
236; Crisp, 253-256; Ger- 
man, 236, 252 ; Japanese, 238. 

Lobanow, Prince, 75. 

Luzatti, Mr., 55. 

Macartney, Lord, 3. 
MacDonald, Sir C, 29, 31, 32, 

84, 92. 
Makimo, Baron, 164. 
Manchuria, see under Japan and 

Russia. 
Morgan and Co., J. P., 205, 228. 
Muravieff, Count, 70. 

Napier, Lord, 5, 6, 196. 

Okuma, Count, 161, 181, 185, 187. 
Open door, see under Great 

Britain, etc. 
Opium war, 6, 7. 

Palmerston, Lord, 5^ 21. 
Port Arthur, see under Japan 
and Russia. 

Railway concessions : 
British: British and Chinese 
Corporation and Jardine, 
MaUieson and Co., 34, 4S- 
61, 67, 90, concessionaire of 
Canton-Kowloon, 32, 54, 55. 
Chunghowsou-Hsinmintung, 
90, Nanking-Ping Hsiang, 
67, Peking-Newchwang, 34, 



Shanghai-Nanking, 32, 53, 

54, Shanhaikuan-Newch- 
wang, 32, 35, 50-52, Soo- 
chow-Hangchow, 32, Tien- 
tsin-Chinkiang, 32, 35, Tien- 
tsin-Lukouchiao, 90, Tien- 
tsin-Shanhaikuan, 33, 90 ; 
Pauling and Company's con- 
cessions, 67, 173; Peking 
Syndicate's concessions, 32, 

55, 56. 

French : Companie f rangaise 
des chemins de fer de Tlndo- 
Chine et du Yunnan, 128- 
130, concessionaire of Kwei- 
chow - Chungking - Chengtu, 
133; Laokai-Yunnanfu, 126, 
128, 133; Taynan-Chengting, 
133 ; Yunnanf u-Chengtu, 

133. 

German : Shantung Railway 
Co., 142, 145, concessionaire 
of Kiaochau-Chinchow, 141; 
Kiaochau-Tsinanfu, 141, 143 ; 
Tsinan-Ichow, 144, 150 ; 
Tsingtau-Ichow, 144, 150. 

International : Anglo-German 
Tientsin-Pukow, 37, 62, 145, 
222-226 ; British-Belgian- 
French Chinese Central 
Rys. Ltd., 61, 62, 67, conces- 
sionaire of Pukow-Sinyang, 
61, 67; Franco-Belgian So- 
ciety d' £tude de chemins de 
fer en Chine, 93, conces- 
sionaire of Kaifenfu-Honan, 
133, Peking-Hankow, 31, 92- 
94, 134, Projects, 93, 94, I34; 
" Tripartite " and Four 
Power Syndicate, 63, 226- 
234, concessionaire of Hu- 
kuang Rys., 133, 227-234. 

Japanese: South Manchurian 
Ry. Co., 167-171, 185, 189, 
concessionaire of Antung- 



294 



INDEX 



Mukden, 166, 167, 174, 
Hsinmintung-Fakumcn, 173, 
Hsinmintung-Mukden, 174, 
Kirin-Changchun, 175, South 
Manchurian rys., 100, 165- 
171, 181, 184, 189. 

Russian : Chinese Eastern 
Ry., jj, 81, 85, 88, III ; Pro- 
jects, 111-113; Tsitsihar-Ai- 
gun. III. 
Russia : 

Amur railway, 70, no. 

Control, see under Control. 

Declaration concerning rail- 
way spheres, 34, 91. 

Diplomacy, 42, 73, 74, 98, 99. 

Foreign policy: Asiatic policy, 
116-118; China, friendship 
with, 73-75f "7; concilia- 
tion, 108; Imperialism, 69; 
Li Hung Chang, 73, 127 ; po- 
litical designs, 96, 99; rela- 
tions with France and Bel- 
gium, 91, 92, 243, 244, Great 
Britain, 34, 88-91, Japan, 71, 
74, 100, loi, 158, 179, 180, 
182, 183. 

Government, autocratic, 69. 

Kiaochau, designs upon, yy, 85. 

Korea, encroachments upon, 

99. 
Manchuria, sphere of interest, 

25, 31-34, 183; Chinese East- 
ern ry., see under Railways ; 
commerce, 109; Harbin, 87, 
103, 107, III; Liao river, 99 ; 
Liaotung and Port Arthur, 
24, 28, 85-87; occupation, 
96; ry. "guards," 84, 102; 
"zones," 84, 102-107; resto- 
ration, 98-101 ; Russification, 
87; Ussuri river, 72; Yalu 
river. 99. 
Mongolia, sphere of interest, 
112-115. 



Railway concessions, see un- 
der Railways. 

Siberian railway, 71, ^^2, 84, 
85, 87, III. 

Vladivostok, 71, 84. 
Russo-Chinese Bank, see under 
Banks. 

Salisbury, Lord, 27, 28, 31, 33, 

38, 46, 88. 
Shantung, see under Germany 

and Japan. 
Spheres of interest, see under 

Great Britain, etc. 
Straight, W. D., 200, 206, 211, 

213, 215, 216, 222, 228, 232, 

239-241, 244, 247-251, 255, 

266, 267, 278. 
Sun Yat Sen, 237, 238, 251, 262. 

Taft, W. H,, 202-204, 211, 228. 
Tang, Shao Yi, 206, 211, 239- 

241, 247. 
Treaties : 
Aigun, 71. 

" Burlingame," 197, 198. 
France-China of 1885, 120. 
Japan-China, Port Arthur, 

189, Shantung, 188. 
Japan-Russia of 1916, 192. 
"Mackay," 44. 
Nanking, 7, 8, 12. 
Peking Protocol, 44. 
Portsmouth, 100, 165, 176, 178, 

181. 
Tientsin, France-China, 22; 
Great Britain-China, 10-14- 

United States: 

American China Development 
Co., 204, 215. 

American International Cor- 
poration, 217. 

Chinchow-Aigun ry. scheme, 
208. 



INDEX 



295 



Commerce in China, 38, 196, 
198. 

"Dollar Diplomacy," 214, 215, 

Financial group's participation 
in Intl. Loans, 211, 212, 227, 
228, see also under Loans. 

Government's support to 
group, 211, 212, 217, 218; 
withdrawn by President 
Wilson, 212, 213. 

Foreign policy in China: 
Boxer indemnity returned, 
201 ; Chinese war, refusal of 
participation, 197 ; ** equal 
opportunity '* and " open 
door," 38, 178, 197-^3, 213, 
219, protection of China, 199, 
201, 219; unselfishness, 196, 



relations with Japan, 178, 
202, 218. 
Manchurian Bank, Develop- 
ment, and Neutralization 
scheme, 205-210. 

Weihaiwei, see under Great 

Britain. 
Williams, E. T., 115. 
Wilson, President, 212, 213, 257. 
Wu Ting Fang, 204. 

Yamamoto, Baron, 162. 
Yangtsze valley, see under Great 

Britain. 
Yuan Shih Kai, 237, 238, 242, 

278. 



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